« previous next »

Author Question: You want to invest in a stock that pays 6.00 annual cash dividends for the next five years. At the ... (Read 91 times)

Lobcity

  • Hero Member
  • *****
  • Posts: 524
on: Jul 10, 2018
You want to invest in a stock that pays 6.00 annual cash dividends for the next five years. At the end of the five years, you will sell the stock for 30.00. If you want to earn 10 on this investment, what is a fair price for this stock if you buy it to
 
  A) 41.37
  B) 40.37
  C) 22.75
  D) 18.63

Question 2

You want to invest in a stock that pays 5.00 annual cash dividends for the next four years. At the end of the four years, you will sell the stock for 20.00. If you want to earn 12 on this investment, what is a fair price for this stock if you buy it to
 
  A) 40.00
  B) 43.90
  C) 27.90
  D) 25.42


pikon

  • Sr. Member
  • ****
  • Posts: 361
Reply #1 on: Jul 10, 2018
Answer to Question 1

Answer: A
Explanation: A) The fair price is the present value of the selling price plus the present value of the dividend stream. Thus, today's price (P) = (future price  PVF) + (dividend stream  PVAF)
= (30  0.620921) + (6  3.790787) = 18.628 + 22.745 = 41.372 or about 41.37.
MODE = END
INPUT 5 10 ? -6 -30
KEY N I/Y PV PMT FV
CPT 41.37

Answer to Question 2

Answer: C
Explanation: C) N = 4, I/Y = 12, PMT = -5, FV = -20, Answer, PV = 27.90


Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
« previous next »
 

Did you know?

A serious new warning has been established for pregnant women against taking ACE inhibitors during pregnancy. In the study, the risk of major birth defects in children whose mothers took ACE inhibitors during the first trimester was nearly three times higher than in children whose mothers didn't take ACE inhibitors. Physicians can prescribe alternative medications for pregnant women who have symptoms of high blood pressure.

Did you know?

Drug-induced pharmacodynamic effects manifested in older adults include drug-induced renal toxicity, which can be a major factor when these adults are experiencing other kidney problems.

Did you know?

In most climates, 8 to 10 glasses of water per day is recommended for adults. The best indicator for adequate fluid intake is frequent, clear urination.

Did you know?

No drugs are available to relieve parathyroid disease. Parathyroid disease is caused by a parathyroid tumor, and it needs to be removed by surgery.

Did you know?

Historic treatments for rheumatoid arthritis have included gold salts, acupuncture, a diet consisting of apples or rhubarb, nutmeg, nettles, bee venom, bracelets made of copper, prayer, rest, tooth extractions, fasting, honey, vitamins, insulin, snow collected on Christmas, magnets, and electric convulsion therapy.

Distribution of glaciers in North America (a) in the late twentieth century, and (b) 18,000 years ag Distribution of glaciers in North America (a) in the late twentieth century, and (b) 18,000 years ag
A passenger train crosses Stony Creek Bridge in the Rocky Mountains in 1878. Railroads were importan A passenger train crosses Stony Creek Bridge in the Rocky Mountains in 1878. Railroads were importan
The Last 10,000 Years of Greenhouse Gas Concentrations The Last 10,000 Years of Greenhouse Gas Concentrations
Mount Pinatubo caused ~1˚C cooling for up to 5 years Mount Pinatubo caused ~1˚C cooling for up to 5 years
Chiropractor (stock image) Chiropractor (stock image)
A portfolio earned -13%, 18%, 5%, 24%, and -5% in five successive years. What was the ... A portfolio earned -13%, 18%, 5%, 24%, and -5% in five successive years. What was the ...
Video: Types of Burns

For a complete list of videos, visit our video library