1) A company currently pays a dividend of $2 per share. It expects the growth rate of the dividend to be 2.5% annually. If the interest rate is 8% what does the dividend-discount model predict the current value of the stock should be?
2) Describe what a stock market bubble is, give an example. Then explain why they are costly to our economy.
3) Which type of index better reflects the changes in the economy’s wealth, price weighted or valueweighted? Why?
4) Why are future price movements unpredictable if the theory of efficient markets is true?