Author Question: A call provision entitles a company to repurchase its preferred stock from holders at stated prices ... (Read 48 times)

bobypop · **on:** Jul 10, 2018

A call provision entitles a company to repurchase its preferred stock from holders at stated prices
over a given time period.

Indicate whether the statement is true or false

Question 2

Sam wishes to invest 8,000 into an account earning 6 compounded annually. If he invests the money today, how much will be in the account in 6 years?

If he waits three years before investing his 8,000 and invests that money for three years, will he earn one-half of the interest earned in the first scenario since he had the same amount invested at the same rate but for only one-half of the time? Explain how you arrived at your answer.
What will be an ideal response?

jrpg123456 · **Reply #1 on:** Jul 10, 2018

Answer to Question 1

TRUE

Answer to Question 2

Answer: FV = PV (1 + r)n = 8,000 (1.06)6 = 11,348.15, for a total of 3,348.15 in interest earned. The FV of the shorter investment is only 9,528.13, for a total of 1,528.13 interest earnedless than half of the total interest earned in the first scenario. The student should recognize that the investor earns less than half of the interest due to the shorter compounding period and less interest being earned on interest.