what should present value price of the stock be if future value is $10k and risk free rate is 5.25%?
2007-04-20 11:29:39 · 2 answers · asked by jjols 2 in Social Science ➔ Economics
future vale is 1 time period
2007-04-20 11:30:23 · update #1
this is an economics question not an actual real world qestion
2007-04-20 16:24:22 · update #2
It stock price depend on both risk and return. Since you "know" its future value will be $10 k it should have a risk free rate of return. so PV=10k/(1.0525). In the real world stocks are risky. The CAPM model is often used for pricing risky assets. see http://en.wikipedia.org/wiki/Capital_asset_pricing_model
The beta for a stock is usually available at financial web sites.
2007-04-20 16:00:59 · answer #1 · answered by meg 7 · 0⤊ 0⤋
Stock price should be based on earnings, book value of company assets, and growth. Look at the price/earnings ratio. Values higher than 15 need to be justified by exceptional growth or future prospects. Values less than 10 are usually considered to be a good buy.
2007-04-20 11:36:23 · answer #2 · answered by Anonymous · 0⤊ 0⤋