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Questions and Answers
What is the primary purpose of imposing tariffs on imported goods?
What type of tariff is a fixed amount per unit of the imported good?
What is the result of a market value exceeding the intrinsic value of a stock?
What method of stock valuation estimates the present value of future cash flows?
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What is the term for the true economic value of a stock?
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What is the effect of a 10% ad valorem tariff on a $100 imported electronic device?
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Study Notes
Tariffs
- A tax imposed by a government on imported or exported goods and services
- Types of tariffs:
- Ad valorem tariff: a percentage of the value of the imported good
- Specific tariff: a fixed amount per unit of the imported good
- Effects of tariffs:
- Increase the cost of imported goods, making them more expensive for consumers
- Protect domestic industries by making imported goods less competitive
- Generate revenue for the government
- Examples:
- A 10% ad valorem tariff on imported electronics would increase the cost of a $100 electronic device by $10
- A specific tariff of $1 per unit on imported sugar would increase the cost of 100 units of sugar by $100
Stock Valuation
- The process of determining the economic value of a company's stock
- Methods of stock valuation:
- Discounted Cash Flow (DCF) method: estimates the present value of future cash flows
- Price-to-Earnings (P/E) ratio method: compares the stock's price to its earnings per share
- Dividend Capitalization method: estimates the present value of future dividend payments
- Key concepts:
- Intrinsic value: the true economic value of a stock
- Market value: the current market price of a stock
- Overvalued: when the market value exceeds the intrinsic value
- Undervalued: when the market value is less than the intrinsic value
- Example:
- A company's DCF analysis estimates its intrinsic value at $50 per share, but its market value is $60 per share. The stock is overvalued.
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Description
Test your knowledge of economics and finance concepts, including tariffs, stock valuation, and more. Learn about different types of tariffs, methods of stock valuation, and key concepts in finance.
