Question

10) 10) You just paid $480,000 for an ann ist paid $480,000 for an annuity that will pay you and your heirs $15.000 a year Torever. What rate of return are you canning on this policy A) 3.100 percent B) 3.125 percent C) 3.650 percent • D) 4.255 percent E) 2.875 percent 11) AC Electric just paid its annual dividend of $2.42. The firm plans to increase its dividend by 2.5 percent for the next 3 years and then maintain a constant 2 percent rate of dividend growth. The required return is 12.5 percent. What is the current value per share of this stock? A) $32.95 B) $23.09 C) $23.82 D) $28.47 E) $22.22 12) 12) Travis invested $8,000 in an account that pays 4 percent simple interest. How much more could he have earned over a 7-year period if the interest had compounded annually? A) $287.45 B) $258.09 C) $291.41 D) $302.16 E) $266.67 13) 13) The value today of the following cash flows is $6523.77 at an interest rate of 5.6 percent. What is the value of the Year 3 cash flow? Year Cash Flow $ 1635 1805 WN- 2455 A) $1505.39 B) $1382.62 C) $1628.15 D) $628.77 E) $3910.81 14) 14) Russell United has 28,500 shares of stock outstanding and has two open seats on its board of directors. Each share of common stock is granted one vote. How many additional votes are required to guarantee a seat on the board if the company were to use straight voting rather than cumulative voting? A) 4,751 B) 4,750 C) 0 D) 950 E) 4,749

Answer 1

10 Present cost of perpetual annuity = $480,000 Annual cash inflows = $15,000 Term = Forever Present cost of annuity = Annual cash inflows/RR $480,000 = $15,000/RR RR = $15,000 / $480,000 = 0.03125 = 3.125 % Ans: Rate of retur , RR = 3.125 %

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