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Author Question: Discraft Inc is expected to pay an annual dividend of 1 at the end of the current year. (Discraft ... (Read 31 times)

dbose

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on: Jul 10, 2018
Discraft Inc is expected to pay an annual dividend of 1 at the end of the current year. (Discraft pays its dividends annually.) The dividend is expected to grow quickly over the ensuing year at the rate of 20.
 
  Starting two years from today the growth rate of dividends will fall to a rate of 3 and continue at that rate in perpetuity. Investors require a 12 return on the stock. Estimate the market price of the shares of Discraft in one year's time (at Year 1 ) just after the next dividend is paid.
  A) 11.24
  B) 11.62
  C) 12.80
  D) 13.33
  E) 14.82

Question 2

You invest 15,000 today, compounded monthly, with an annual interest rate of 8.25. What amount of interest will you earn in one year?
 
  A) 1,285.38
  B) 1,295.38
  C) 1,298.98
  D) 1,723.23


jazzlynnnnn

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

D

Answer to Question 2

Answer: A
Explanation: A) With PV = 15,000, APR = 8.25, C/Y = 12, periodic interest rate = r = 0.006875, we begin by taking (1 + periodic rate) to the power of C/Y. Doing this gives: (1.006865)12 = 1.085692. Multiplying this number by PV gives 16,285.38. Thus, the interest earned is:
16,285.38 - 15,000 = 1,285.38.


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