# Supply and Demand and Demand Curve Essay

Words: 2863
Pages: 12

TUTORIAL 2:

Topic 1: The Firm and Its Goals 1) a. If a stock is expected to pay an annual dividend of \$20 forever, what is the approximate present value of the stock, given that the discount rate is 5%? b. If a stock is expected to pay an annual dividend of \$20 forever, what is the approximate present value of the stock, given that the discount rate is 8%? c. If a stock is expected to pay an annual dividend of \$20 this year, what is the approximate present value of the stock, given that the discount rate is 8% and dividends are expected to grow at a rate of 2% per year?

a. P = D/k = 20/.05 = \$400
b. P = 20/.08 = \$250
c. P = D1/(k - g) = 20/(.08 - .02) = \$333.33

2) If a stock is expected to pay
Qd = 30 and Qs = 50
b. Qd = 46 and Qs = 42
c. Q = 43.33 and P = \$3.33

9) A good's Demand Curve is: Qd = 25 - P, and its Supply Curve is: Qs = 10 + 2P.
a. When P = \$20, what is the difference, if any, between Qd and Qs?
b. When P = \$3, what is the difference, if any, between Qd and Qs?
c. What are the equilibrium values of P and Q?