1. Suppose that the price of Goldman Sachs stock is currently $142 per share. You expect that the firm will pay a dividend of $1.40 per share at the end of the year, at which time you expect that the stock will be selling for $160 per share. Also, suppose other than stock trading, you have an opportunity to earn 8% rate of return from a mutual fund which is in general safer than stocks. Should you buy the stock or buy the mutual fund? Briefly explain and show your work. (20 points)

    This depends on the cause apetite of the endowor and the certainity associated with GS’ distribute expense and the recur from the mutual store.

    If individual endows $142 in the GS store then object of the year, the investor obtain accept a recur of

    ((decisive expense – suborning expense)+dividend)/buying expense = ((160-142) + 1.4)/142 = 13.66%

    This is a considerable eminent recur than the 8% recur from a mutual fund.

    If individual is cause reluctant then it is safer to endow in the mutual fund. However, if individual has some demonstrableness that the GS store obtain appreciate then individual can suborn the GS store.