Kathy Myers frequently purchases stocks and bonds, but she is uncertain how to d
ID: 2347703 • Letter: K
Question
Kathy Myers frequently purchases stocks and bonds, but she is uncertain how to determine the rate of return that she is earning. For example, six years ago she paid $29,000 for 900 shares of Malti Company's common stock. She received a $630 cash dividend on the stock at the end of each year for six years. At the end of six years, she sold the stock for $22,800. Kathy would like to earn a return of at least 15% on all of her investments. She is not sure whether the Malti Company stock provided a 15% return and would like some help with the necessary computations. (Ignore income taxes.)
Determine the net present value.
Explanation / Answer
net present value = -$29,000 + 630/1.15 + 630/1.15^2 + 630/1.15^3 +630/1.15^4 + 630/1.15^5 + 630/1.15^6 + $22,800/1.15^6 = -$16,758.71
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