Question: (1) What are the two components of return on equity? (Hint, Current yield and capital gains). Please expalin (ii) Explain Gordon's model of determining the

(1) What are the two components of return on equity? (Hint, Current yield and capital gains). Please expalin

(ii) Explain Gordon's model of determining the price stocks

(iii) Explain through Gordon's model(D1/(Ke-g)) the impact on stock prices when

(a) Bank of Canada reduces interest rate.

(b) The economy is expected to face recessionary conditions.

Remember that Ke, the required rate of return=risk free rate on Govt. bonds+risk premium(how risky is the stock whose price you are determining)

(iv) Explain the term random walk(Stock prices follow random walk)

(v) What is rational expectaion?

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