17. What is the present value of the following mixed cash flow stream if interes

Question

17. What is the present value of the following mixed cash flow stream if interest is 10% with annual compounding?

YEAR CASH FLOW
0 -$33,500
1 $2,000
2 $2,000
3 $5,000
4 $5,000
5                              $5,000
6                              $7,500
7                              $12,880
8                              $22,000

A. $34,853.52

B. $27,880.00

C. $1,353.52

D. $1,821.91

18. North Park International LLC has issued preferred stock ($65 par value) that pays an annual dividend of $5.80. The preferred stock matures in 20 years. At that time, holders of the stock will receive, at their option, either $65 or one share of common stock with a value up to $90. If the common stock is trading at a price above $90, the preferred stockholders will receive a fractional share of common stock worth $90. The current common stock pays a $1.5 per share dividend. This dividend is expected to grow at a 3 percent rate per year for the next 20 years. If the market requires a 24% rate of return on a stock of this risk and maturity, what is the maximum value for which the share can be expected to trade?

                A. $25.06

                B. $136.12

                C. $23.84

                D. $24.72

19. Beth has just had her 45th birthday. She has two children. One will go to college 4 years from now and require four year beginning-of-year payments for college expenses, $18,000, $19,500, $20,500, and $21,500. The other will go to college 9 years from now and require four year beginning-of-year payments for college expenses, $23,000, $23,500, $24,000, and $24,500. In addition, Beth plans to retire in 20 years. Beth wants to be able to withdraw $100,000 per year (at the end of each year) from an account for 25years. The first withdraw occurs on her 66st birthday. What equal, annual, end –of-year amount must Beth save for each of the next 20 years to meet these goals if all savings earn a 8% annual rate of return?

A. $118,997.63

B. $30,296.10

C. $32,939.42

D. $133,725.15

20. Bunge, Inc. issued a 25-year bond which is callable in 17 years. It has a coupon rate of 6.75% payable annually, has a call premium of $105, and is currently selling for $1012. What is the yield to call?

A. 6.17%

B. 6.63%

C. 6.97%

D. 6.82%

Explanation / Answer

YEAR Cash flow PV factorr PV 0 ($33,500) $1 ($33,500) 1 $2,000 $0.9 $1,818 2 $2,000 $0.8 $1,653 3 $5,000 $0.8 $3,757 4 $5,000 $0.7 $3,415 5 $5,000 $0.6 $3,105 6 $7,500 $0.6 $4,234 7 $12,880 $0.5 $6,609 8 $22,000 $0.5 $10,263 $1,353.52

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