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Expansionary (i.e., looser) monetary policy to lower interest rates would help to stimulate investment and expenditures on consumer durables. Expansionary fiscal policy (i.e., lower taxes, higher government spending, increased welfare transfers) would directly stimulate aggregate demand.
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a. Oil well equipment. Possible decline worldwide, due to environmental pressures and a decline in easily-developed oil fields, but may be in maturity in the US due to increased need for energy b. Computer hardware Generally a consolidation or maturity stage c. Computer software Likely in a consolidation stage currently d. Genetic engineering Likely in a start-up stage e. Railroads
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If the risk premium on the stock is 4%, and the risk-free rate is 7%, then the require rate on the stock would be 11%. Given a forecast dividend of $2.10, divide that by your 11% discount rate to give a price of = $19.09
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The goal is to get earnings over equity. Leverage is Assets/Equity Asset turnover is Sales/Assets Profit Margin is Earnings/Sales Payout ratio is Dividends/Earnings If we take: Earnings/S * S/A * A/Equity, the Sales and Assets cancel to give Earnings over Equity. Numerically, it is: 5.5% 2.0 2.2 = 24.2%
Problem 5: Taxes
You are choosing a fund that you will put in your investment (non-retirement) account. Assuming distribution and operating activities which occurred in the past will likely continue, which of the following funds should you include in your taxable (non-retirement) account. Assume federal taxes on short term distributions are 35% and state taxes are 7%. How would this change if these were both stock funds? Mutual Funds Fund A Fund B Beginning NAV $10.00 $10.00 YTD Nominal returns 10% 10% Estimated Turnover 10% 90% Short-term distributions .10 .90 Ending NAV 10.90 10.10
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Mutual Funds Fund A Fund B Beginning NAV $10.00 $10.00 Short-term distributions .10 .90 Ending NAV 10.90 10.10 Tax on ST distributions 35%+7% 35%+7% Taxes paid (w/o selling) .042 .378 After-tax return 9.58% 6.22% Loss from return due to taxes .42% 3.78% Although both have the same before-tax return, fund B had a 35% lower return due to taxes. Fund A is the better choice for a taxable account, while either fund could be used for a retirement account
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You can do this problem two ways.
First, total payout. (($4,500-$4,000) + 100) / $4,000 = ? 15% Or, share amount ($45 40) + 1 / 40 = ? 15%
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The easy way:
$1/$40 = 2.50% Or [1+(($4,000-$4,000) + 500) / $4,000)](1/5) = 2.38%
The stock performed better than the bank account
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First, draw the diagram 1. Calculate the Shortfall 2. Inflation adjust the shortfall 3. Calculate the real return and the annuity 4. Calculate the period payment Time 30 years 25 years Return Inflation Now 8% 3% Return Inflation Retirement 6% 2% Death
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1. The annual shortfall is: 80,000 25,000 = ? The shortfall is $55,000. 2. To get the inflation adjusted amount, we use: PV = 55,000, I/Y = 3, N = 30, and solve for FV which gives the amount that they need annually in retirement. FV of $133,499
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3. To get the real return and the annuity for 25 years, calculate the real return with 6% nominal and 2% inflation, which gives a real return of ? Real return of 3.92% = [(1.06)/(1.02)] 1. The annuity required is PMT = $133,499, I = 3.92, N = 25, PV = ? The annuity needed is $2,103,279 4. to get the amount to save, it is I = 8%, N = 30, FV = $2,103,279, and PMT = ? To give what you need to save each year They need to save $18,567 to reach their goals t your individual level of savings or your current financial condition.
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The formula is: (1 + r(US)) = (1 + r(UK)) (F0/E0). (F0/E0) is just 1 + the return from the currency. To get the US return, solve for: = 1.08 * (1.85/1.75) = 1.1417 - 1 = 14.17% F0 is the forward rate. E0 is the exchange rate