Answers
Why do we have to use the continuously compound interest rate to calculate the future price ?
The future price calculation model is in future market (Ex: F=Se^rT). Why we do not use quartely or yearly compound but the continuous compound.
Since the future market changed on daily basis so do the interest rates thats why we calculate compound interest on daily basis.
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If so, how are options used to help predict the future price of a stock?
Possibly through price difference in a put vs. call?
They aren't usually that good at predicting prices.
An increase in option prices without a concurrent increase in the stock price is a better predictor that volatility is increasing than that the price will go up.
8. Which of the following explains why firms and workers fail to predict the future price level accurately?
A. Businesses are often slow to adjust wages.
B. Menu costs make some prices sticky.
C. Predicting the future price level accurately is impossible.
D. Contracts make some wage and prices sticky.
E. All of the choices given here.
I think it's (E). There are reasons why expected price differs from actual price:
1.The Sticky-Wage Theory
2.The Sticky-Price Theory
3.The Misperceptions Theory
A,B,C, and D are all examples of those theories.
If many of the suppliers in a market suddenly raise their expected future price for the good one month into the future (due to some recent unexpected event), this lead to a ____ in supply today in the market and a _____ in the equilibrium price today in the market.
A. rise; fall
B. fall; rise
C. fall; fall
D. rise; rise
I have looked on several financial/investment websites and in at least two instances a stock that I currently hold for a small cap company is projected to increase by a factor of 176% over the next twelve months. What data and/or calculations do the analysts use to make this estimate or projection?
If the analyst is a fundamental advisor, s/he is likely looking at future cash flows. Those are dependent on the competitive landscape, current management, projected future sales, and the overall path of the US and global economy.
Take a look at this link.
http://en.wikipedia.org/wiki/Fundamental _analysis
If it's a small cap, see if S&P or ValueLine follow it. I prefer using them rather than other analysts' reports as I think they are a tad bit more objective.
If it's a technical analyst (AKA chartist), it is based on the sales prices and volumes of the prior period (may be 3 days, 50 days, or almost any other number of days.
http://www.investopedia.com/university/t echnical/
There's nothing wrong with technical analysis, IMHO. I use to determine buy and sell prices myself, but I use it in conjunction with fundamental analysis.
Econbrowser: Futures As Predictors of Commodity Prices
This periodical examines the relationship between particle and futures prices for commodities, including those for vitality (offensive oil, gasoline, heating oil markets and above gas), adored and lowly metals (gold, silver-toned, aluminum, copper, leading, nickel and tin), and agricultural commodities (corn, soybean and wheat). In specific, we interrogate whether futures prices are (1) an unbiased and/or (2) on the mark predictor of resulting catch sight of prices. We find that while spirit futures prices are large unbiased predictors of future sully prices, there are unquestioned great exceptions. For both low and alembicated metals, the results are much less favorable to unbiasedness postulate. For overdone metals and copper and place, we strongly drop the null that β=1 at all three horizons. For the these other bad metals, while we cannot turn one's back on that β=1, due to overwhelmingly touchstone errors. Once, both corn and soybean futures have β close to 1, while wheat has β
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