How much should you pay for a share of stock that offers a constant growth rate of 13%, requires a 18% rate of return, and is expected to sell for $50 one year from now?

$44.25

Explanation:

procedure 1:

we can determine the present value of the stock using the following formula:

present value = future value / (1 + constant growth rate)ⁿ

present value = $50 / (1 + 13%) = $50 / 1.13 = $44.25

procedure 2 (optional):

future value = future dividend / (required rate of return - constant growth rate)

$50 = future dividend / (18% - 13%)

future dividend = $50 x 5% = $2.50

now we must determine the dividend for the current year:

current dividend = future dividend / (1 + constant growth rate)

current dividend = $2.50 / (1 + 13%) = $2.50 / 1.13 = $2.21

now we apply the Gordon growth model:

present value = dividend / (required rate of return - constant growth rate)

present value = $2.21 / (18% - 13%) = $2.21 / 5% = $44.25

the correct answer is economics is a game without winners or losers.

unlike sports or games economic is a game without losers or winner rather it is a game where everyone wins. parties of business doing businesses exchange money with each other and hence exchange is done on the basis of goods. one party takes the goods and other sales it so there is winner on both sides. each party values more highly the good it gets than the good it gives up. both sides exchange only because both intend to increase their value. so there is no concept of lose or win.

answer; by looking at total product,marginal product,and changes in both after changes in inputs