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Author Question: Olivia and her spouse have saved 4,500 for a 12-day cruise vacation in Europe. The couple needs ... (Read 108 times)

elizabeth18

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on: Jul 10, 2018
Olivia and her spouse have saved 4,500 for a 12-day cruise vacation in Europe.
 
  The couple needs 5,000 for a nice cabin or 6,000 for a luxury cabin. If cabin prices are expected to remain constant for the next three years and Olivia expects to earn 6 per year on her investments, will the couple's savings be enough to afford the nice cabin in three years? Can they afford the luxury cabin? Why or why not?
  A) Yes, they can afford the nice cabin or the luxury cabin because their 4,500 investment will increase to 6,360 by the end of year three.
  B) Yes, they can afford the nice cabin or the luxury cabin because their 4,500 investment will increase to 5,360 by the end of year three.
  C) Yes, they can afford the nice cabin but NOT the luxury cabin because their 4,500 investment will only increase to 5,360 by the end of year three.
  D) No, they cannot afford the nice cabin or the luxury cabin because their 4,500 investment will only increase to 4,950 by the end of year three.

Question 2

The board of directors of Ride World, Inc has declared 5.00 common stock dividend and accepted a plan to freeze the dividend at 5 per year indefinitely.
 
  What is the value of the Ride World's common stock if the required rate of interest is 15 percent?


bhavsar

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

Answer: C
Explanation: C) FV = PV  (1 + r)n = 4,500  (1.06)3 = 5,360
MODE = END
INPUT 3 6 -4,500 0 ?
KEY N I/Y PV PMT FV
CPT 5,360

Answer to Question 2

P = D / r = 5 / 0.15 = 33.33


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