Author Question: Consider a two-year investment: Given a constant and positive interest rate, the interest earned in ... (Read 204 times)

Jkov05

  • Hero Member
  • *****
  • Posts: 556
Consider a two-year investment: Given a constant and positive interest rate, the interest earned in the second year will be greater than the interest earned in the first year (assuming annual compounding).
 
  Indicate whether the statement is true or false.

Question 2

In response to the stock market's reaction to its dividend policy, the Nico's Toy Company has decided to increase its dividend payment at a rate of 4 percent per year.
 
  The firm's most recent dividend is 3.25 and the required rate of interest is 9 percent. What is the maximum you would be willing to pay for a share of the stock?



alvinum

  • Sr. Member
  • ****
  • Posts: 317
Answer to Question 1

Answer: TRUE
Explanation: The second year earns interest on the first year interest as well as interest on the principal.

Answer to Question 2

P = D1 / (r - g) = 3.25  (1 + 0.04 ) / (0.09 - 0.04 ) = 67.60



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question


 

Did you know?

It is important to read food labels and choose foods with low cholesterol and saturated trans fat. You should limit saturated fat to no higher than 6% of daily calories.

Did you know?

Anti-aging claims should not ever be believed. There is no supplement, medication, or any other substance that has been proven to slow or stop the aging process.

Did you know?

Sperm cells are so tiny that 400 to 500 million (400,000,000–500,000,000) of them fit onto 1 tsp.

Did you know?

More than 50% of American adults have oral herpes, which is commonly known as "cold sores" or "fever blisters." The herpes virus can be active on the skin surface without showing any signs or causing any symptoms.

Did you know?

Oliver Wendell Holmes is credited with introducing the words "anesthesia" and "anesthetic" into the English language in 1846.

For a complete list of videos, visit our video library