Answer and post your response to the following three part question:

ANSWER ALL PARTS AS IT IS ONE QUESTION.

Part 1

• Have you ever purchased stock? Go to yahoo finance on the internet and research one publically traded stock. What is the current stock price? What is the current dividend What is the current earnings per share (EPS)? What does the firm do? Who are the owners (generally speaking)? Who runs the firm (generally speaking)?

Part 2

• Suppose you want to buy stock in a firm called Infinity. The firm states that they expect to pay you $1 per year forever. What is a fair price for this stock if an investment in similar firms return 5% per year? (The computation is based on time value of money computations we learned in Chapter 5.) Hint: Is this a perpetuity? If so, how would you value it (what is the payment and what is the interest rate)?

  Apply this same calculation to the stock you found in Part 1. Compute an estimate of the value of your stock assuming the earnings per share is equal to a perpetual dividend and the cost of capital is equal to 5%. (If your firm has 0 EPS or a negative EPS, then research a different stock with a positive EPS).

Part 3

• Why would someone want to buy stock? Why is stock valuable to an investor? What makes stock different than a bond or a savings account at a bank? How might you determine the risk of a certain firm? How does the risk of the firm relate to the return you expect from the stock?