Assume a stock pays a perpetual dividend of 2 dollars, has a required rate of return of 9%, a relative bid ask spread of 0.5% and a relative trading frequency of 0.1 (μ=0.1). According to the Amihud and Mendelson (1986) model, the price of the stock would be: a.$22.10 b. $2.00 c. $9.02 d. Other e. $14.50 Give typing answer with explanation and conclusion
Assume a stock pays a perpetual dividend of 2 dollars, has a required rate of return of 9%, a relative bid ask spread of 0.5% and a relative trading frequency of 0.1 (μ=0.1). According to the Amihud and Mendelson (1986) model, the price of the stock would be: a.$22.10 b. $2.00 c. $9.02 d. Other e. $14.50 Give typing answer with explanation and conclusion
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Assume a stock pays a perpetual dividend of 2 dollars, has a required
a.$22.10
b. $2.00
c. $9.02
d. Other
e. $14.50
Give typing answer with explanation and conclusion
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