7. You are considering changing jobs. Your goal is to work for three years and t

Question

7. You are considering changing jobs. Your goal is to work for three years and then return to school full-time in pursuit of an advanced degree. A potential employer just offered you an annual salary of $41,000, $43,000, and $46,000 a year for the next three years, respectively. All salary payments are made as lump sum payments at the end of each year. The offer also includes a starting bonus of S3,000 payable immediately. What is this offer worth to you today at a discount rate of 6.75 percent? A. S11,406 B. $114,545 C. S116,956 D. $120,212 E. S133,697 8. Big Ten offers a 9 percent coupon bond with semiannual payments and a yield to maturity of 11.68 percent. The bonds mature in 16 years. What is the market price per bond if the face value is $1,000 A. $807.86 B. $863.08 C. $916.26 D. $1,453.10 E. $1,322.88 9. Boilermaker Inc. just announced that it will increase the annual dividend to $1.75 in the next year and establish a policy whereby the dividend will increase by 2 percent annually thereafter How much will one share of this stock be worth six years from now if the required rate of return is 14.5 percent? A. $14.00 B. $14.28 C. $14.84 D. $15.77 E. $16.08 10. Pluto Corporation just paid a $1.80 per share annual dividend last month. The company is planning on paying $2.00, $2.50, $2.75, and $3.00 a share over the next four years, respectively After that the dividend will be constant at S3.20 per share per year. What is the market price of this stock if the market rate of return is 13 percent? A. $7.47 B. $15.96 C. $20.73 D. $22.57 E. $24.37

Explanation / Answer

7) Statement Showing worth of offer

Thus answer

C) $116,956

8) Value of Bond = Interest*PVIFA(YTM%,n) + Redemption value*PVIF(YTM%,n)

=Interest rate = 9%/2 = 4.5% , YTM = 11.68%/2 = 5.84% , n = 16*2 = 32 years

Value of bond = 1000*4.5%*PVIFA(5.84%,32) + 1000*PVIF(5.84%,32)

=45*14.3385 + 1000*0.162632

=645.2324 + 162.6318

=807.8641$

Thus ans A) $807.86

9) Statement showing dividend amount

Price at year 6 = D7/Ke-g

=1.97/14.5%-2%

=1.97/12.5%

=15.77$

Thus ans

D) $15.77

10) Statement showing Market price of share today

Ans :

D) $ 22.57

Particulars 0 1 2 3 Total Salary 3000 41000 43000 46000 PVIF @ 6.75% 1.0000 0.9368 0.8775 0.8220 Present value 3000 38407.49 37733.99 37814.14 116956

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