Homework 4 ANS D 203 The efficient markets hypot NC STATE Courses 2017-2018 Ques
ID: 2574197 • Letter: H
Question
Homework 4 ANS D 203 The efficient markets hypot NC STATE Courses 2017-2018 Question 18 Suppose that your research shows that the present value of a stock's Not yet answered dividend stream and future price exceeds its price. This should lead you to believe that the stock is Points out of 4.00 Flag question Select one: A overvalued so you should not consider buying it. B. overvalued so you should consider buying it C. undervalued and you should consider buying it. D. undervalued and you should consider selling it. 0 Question 19 Not yet answered Points out of 4.00 Keira deposited $2,000 into an account two years ago. The first year the interest rate was 5%; the second year the interest rate was 6%. How much money does Keira have in her account today? Flag Select one: A. 2, 226.00 B. 2.205.00 C. 2,464.20 D. 2,24720 F3 FS F6 F7 F8 F9Explanation / Answer
Answer 19 is C.
Expected price of stock is the present value of dividend stream and future price.
Expected price of stock exceeds current price of stock.
So, stock is undervalued as expected price is higher than market price.
Since stock is undervalued, we should purchase the stock
Answer 20 is A.
Amount deposited = $2,000
Interest Rate over Year 1 = 5%
Interest Rate over Year 2 = 6%
Accumulated Value after 1 year = $2,000 * 1.05
Accumulated Value after 1 year = $2,100
Accumulated Value after 2 year = $2,100 * 1.06
Accumulated Value after 2 year = $2,226.00
So, money in her account today is $2,226.00
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