Question

MULTIPLE CHUILE. LHOUSE the Unit question. 1) 1) Your father invested a lump sum 28 years ago at 4.05 percent annual interest. Today, he gave you the proceeds of that investment, totalling $48,613.24. How much did your father originally invest? A) $14,929.47 B) $16,500.00 C) $15,500.00 D) $15,994.70 E) $16,099.45 2) - 2) Beginning three months from now, you will need $1,500 each quarter for the next four years to cover expenses. How much do you need to have saved today to meet these needs if you can earn .35 percent interest per quarter? A) $23,300.75 B) $26,069.79 C) $21,068.00 D) $22,319.54 E) $26,847.15 3) 3) What is the EAR of 18.9 percent compounded continuously? A) 19.06 percent B) 19.89 percent C) 21.38 percent bet Sbobet D) 19.43 percent E) 20.80 percent 4). 4) The current dividend yield on CJ's common stock is 1.89 percent. The company just paid an annual dividend of $1.56 and announced plans to pay $1.70 next year. The dividend growth rate is expected to remain constant at the current level. What is the required rate of return on this stock? A) 12.75 percent B) 13.39 percent C) 15.82 percent D) 9.08 percent E) 10.86 percent Debat

Answer 1

1)

Present value = future value /(1 + r)ⁿ

Present value = 48,613.24 /(1 + 0.0405)²⁸

Present value = 48,613.24 / 3.039334

Present value = $15,994.70

2)

Number of periods = 4 * 4 = 16

Present value = Quarterly payment * [1 - 1 /(1 +r)ⁿ] / r

Present value = 1500 * [1 - 1 /(1 +.0035)¹⁶] / 0.0035

Present value = 1500 * 15.533832

Present value = $23,300.75

3)

The continuous rate is calculated by raising the number "e" (approximately equal to 2.71828) to the power of the interest rate and subtracting one

EAR = 2.71828^0.189 - 1

EAR = 1.2080 - 1

EAR = 0.2080 or 20.80 percent

4)

Growth rate = [(1.7- 1.56)/ 1.56] = 0.089744

Required return = Dividend yield + growth rate

Required return = 0.0189+0.089744

Required return = 0.1086 or 10.86 percent