If the interest rate were 12.5 percent, how much would people be willing to pay for...
If the interest rate were 12.5 percent, how much would people be willing to pay for a stock that was certain to yield a $20 per share stream of net earnings continuously in the future?
Homework Answers
There is continuous earning, which indicates perpetuity.
Stock price = Net earnings / Rate of interest
= 20 / 0.125
= $160 (Answer)
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