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Author Question: Buying your own home is often mentioned as the best investment you can make. In 1930, the average ... (Read 102 times)

cnetterville

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on: Jul 10, 2018
Buying your own home is often mentioned as the best investment you can make. In 1930, the average home sale price was 3,845. By 1990, the average home sale price had risen to 123,000.
 
  What was the average annual rate of change in the price of houses over this time period?
  A) 3.42 per year
  B) 5.95 per year
  C) 10.12 per year
  D) 12.36 per year

Question 2

Compute the value of a share of common stock of Lexi's Cookie Company whose most recent dividend was 2.50 and is expected to grow at 3 percent per year for the next 5 years,
 
  after which the dividend growth rate will increase to 6 percent per year indefinitely. Assume 10 percent required rate of return.


mmj22343

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Reply #1 on: Jul 10, 2018
Answer to Question 1

Answer: B
Explanation: B) r = (FV/PV)1/n - 1 = (123,000/3,845)1/60 - 1 = 5.95 per year
MODE = END
INPUT 60 ? -3,845 0 123,000
KEY N I/Y PV PMT FV
CPT 5.95

Answer to Question 2

D6 = 2.90 (1 + 0.06 ) = 3.07
P2 =  = 47.69
Value of stock = 47.66 + 10.32 = 57.99


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