Microeconomics 6th Edition by Robert Hall, Shirley Kuiper, Marc Lieberman

Exercise 14

Suppose that people are sure that a firm will earn annual profit of $10 per share forever. If the interest rate is 10 percent,how much will people pay for a share of this firm's stock? Suppose that people become uncertain about future profit. What would happen to the price they would be willing to pay? (Your answer will be descriptive only.)