Asked by
Michael Hirsch
on Dec 11, 2024
Verified
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?
A) $20
B) $25
C) $160
D) $250
Interest Rate
The cost of borrowing money, usually expressed as a percentage of the amount borrowed.
Net Earnings
The amount of income left after deducting all expenses, taxes, and costs from gross revenue.
Continuous Future
A futures contract that amalgamates several expiry contracts to create a continuous, extended trading period for investors.
- Understand the connection between interest rates and the current worth of future income.
Verified Answer
ZB
Learning Objectives
- Understand the connection between interest rates and the current worth of future income.