Kathy Myers frequently purchases stocks and bonds, but she is uncertain how to d
ID: 2592144 • 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, three years ago she paid $18,000 for 920 shares of Malti Company’s common stock. She received a $718 cash dividend on the stock at the end of each year for three years. At the end of three years, she sold the stock for $21,000. Kathy would like to earn a return of at least 16% on all of her investments. She is not sure whether the Malti Company stock provided a 16% return and would like some help with the necessary computations.
Required:
1. Compute the net present value that Kathy earned on her investment in Malti Company stock using Excel.
Explanation / Answer
1) Calculation of net present value at the end of three years (Amount in $)
As the Net present value is negative, she had not earned Return of 16% on stock.
Years Cash Inflows (a) PVF@16% (b) Present value of cash flows (a*b) 1 718 0.862 618.92 2 718 0.743 533.47 3 718 0.641 460.24 3 21,000 0.641 13,461 Total PV of cash inflows 15,073.63 initial investment (18,000) NPV (2,926.37)Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.