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Is the futures price of a stock index greater than or less than the expected future value of the index? Explain your answer....

Question

Is the futures price of a stock index greater than or less than the expected future value of the index? Explain your answer.

Is the futures price of a stock index greater than or less than the expected future value of the index? Explain your answer.



Answers

To the nearest dollar, what does the analyst believe
the value of the stock will be at the end of three
weeks? (Note: Disregard the $\$$ sign when gridding
your answer.)

Our demand and supply curse more elastic in the short run. For the long run, the answer is the long room. Okay, the farther ahead in time you go, the more elastic demand and supply are. I like the example of a grocery store for this, and this example goes as follows. Let's say that you have a very important dinner. Let's say you're in los are coming to town. You want to make sure everything is perfect. So you have planned to make this dinner and they arrive in one hour three. So something happened in which you couldn't cook, but now you have to do it last minute. Now, in order to cook, you're gonna need a bunch of ingredients and you have a grocery store that is very close to you, okay? And the only one that you can go in the amount of time that you have. If this grocery store this side's too changes prices to increase its prices, you have no choice but to pay those prices because you don't have the time to go to a different store and buy the ingredients somewhere else. You're in, violence are coming and you're hurt. So In the short run, your elasticity of the man would be really an elastic. However, if it's earlier in the day and you have the time before you're in Los Arrive, then you have the time to make choices. Do you rather go to this grocery store or go to a different grocery store? So you're a necessity of the man has become more elastic, right? Because I get us farther ahead. You have more time to view your options. You have more time to look for other goods, and that's how elasticity works in the long run and the truth.

Everyone. Today we're solving problem number four from Chapter 17 financial markets of the textbook, which asks, which has a higher average return over time stocks, bonds or a savings account. And it also asks us to explain our answer. So over a sustained period of time, stocks will have a higher average return that bonds and bonds will have a an average return hired, then the savings account. So based off of that much we know and also based off of this table right here, we know you should be Bye. Sorry about that. This is a table from chapter 17 and we look at our return calls for stocks. Return is very high on bus stops will end up winning it. I will explain briefly down here in a second. The answer here is going to be stocks. I'll be number one and the number to the bonds and the number three would be the savings. As we can see, also, there were returning. Our savings account is low and then for bonds. So this table will from chapter 17 of reading will give you the answers. So why is it that stocks have the highest rate of return over sustained time. Well, um, the rationale is that soft bodies congrats declined by a very large amount, huh? They grow or defined by large amounts, and I'll give you a few examples. I think examining of depressions and economic booms are kind of the best ways to see how these really fluctuate. I'll just say they groan. Define a lot by a lot. Or largely this better. Uh, listen example. For example, as we're coming out of the recession from 2007 to 2008 the S and P 500 increased 26% in 2009 after declining 37% in 2008. So down 37% elite. That's probably one of the best examples in 2008. And then after it went down a lot, it went back up a lot. So it grows and defines by large insists it went up 26% in 2000. So that's just one example of how stocks really change their value and the returns, um, hi. So, um, stocks the number one now bonds are kind of just in the middle. That largely depends on interest rate fluctuations. So they very, far less because the interest rate can only change so much. All abbreviate interest rate as I r less change than stocks, but they're going to change warring in the savings account. And I'll explain why in just a minute when I go to saving outs, um, less change and the stock, the interest rate can only change so much. But it does change something that's not much. And finally, to explain why the savings account has the least, um, why the savings account has the least highest or the lowest rather after to turn over time. So a savings account, um, in any given year changes very little. It's one of those assets. Ares doesn't change that much. That's why we're the best vaccination. Um, it is a little repetitive, but very little change. Yeah, So, essentially, stocks have the highest average treated return over time than bonds. Then savings account. And there you have it. If you guys enjoyed my radio explanation of this problem polices the like right next to it. I hope you all have a nice day. And thank you for watching

Everyone. Today we're solving problem number 26 from Chapter 17 of the textbook, which asks, Why's it so hard and so difficult to predict future stock prices? Um, and the son she had picked out a section in our textbook, which gives us our answer. And it states right here that the fundamental problem we're predicting future stock winners is that by definition no one can predict the future use that alters expectations about profits so you can't predict future needs. For example, you cannot predict if a terrible war between China and the United States will start under President Trump in 2019. Who knows? Um, that would automatically change the stock market a lot, Um so it says, because stock prices will shift in response to unpredictable future news. Thes prices will tend to follow what mathematicians mathematicians call a random walk with the track. The random walk part means that on any given day, stock prices are justice, like whom to rise as the article with the trend means that over time the upward steps tend to be large Ethan dollars steps the stocks do right to the car. Um, but however, um, the reason why it's so unpredictable. You just learned is that, um you cannot predict future news. Essentially, you can't predict what's gonna happen in the used A today. You can't predict what presidents are gonna do our leaders of the world. And as a result, the news will profits and profits wolf back stock prices. It's a very happy if you guys enjoy the city explanation, please. The light. But next to it, I hope you all have a nice day. And thank you for watching.

This is wants us to talk about the present value and the future Valium of anonymity. So the future value, um uh, deals with making periodic payments are, um And so what happens is is like if you paid 100 bucks a month to account, that's getting compounded monthly. There's an equivalent present value of an annuity, which is how much money would have to contribute at the beginning to get the same value the same future value at the end. So our talks about future value because you're making payments into the future and present value means you're making one love some in the present. So because not all the money is there at the beginning, um, the future value, uh, you'll end up having to pay more ah than the present value or the sum of all the R's. So our times in, um is gonna be greater than the the president value that you have to put in two equal to Sam out. Okay, that's it. Thank you very much.


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