1) anderson motors inc. has just set the company dividend policy at $0.65 per ye

ID: 2708770 • Letter: 1

Question

1) anderson motors inc. has just set the company dividend policy at $0.65 per year. the company plans to be in business forever.

(Round to the nearest cent)

A)what is the price of this stock if an investor wants a return of 5%?

B)what is the price of this stock if an investor wants a return of 7%?

C)what is the price of this stock if an investor wants a return of 10%?

D)what is the price of this stock if an investor wants a return of 16%?

E)what is the price of this stock if an investor wants a return of 18%?

2)Pfender Guitars has a current annual cash dividend policy of $4.00. The price of the stock is set to yield a return of 9%.

(Round to the nearest cent)

A)what is the price of this stock if the dividend will be paid for 9 years and then a liquidating or final dividend of $25?

B)what is the price of this stock if the dividend will be paid for 15 years and then a liquidating or final dividend of $25?

C)what is the price of this stock if the dividend will be paid for 50 years and then a liquidating or final dividend of $25?

D)what is the price of this stock if the dividend will be paid for 60 years and then a liquidating or final dividend of $25?

E)what is the price of this stock if the dividend will be paid for 100 years and then a liquidating or final dividend of $25?

F)what is the price of this stock if the dividend will be paid forver with no liquidating dividend?

3.Yankee Athletic Club has preferred stock with a par value of $100 and an annual 8% cumulative dividend. Given the following prices for the preferred stock, what is each investor seeking for his or her return?

A. alex is willing to pay $35 for the preferred stock, what rate of return is he seeking?

b.derek is willing to pay $30 for the preferred stock, what rate of return is he seeking?

c.maria is willing ro pay $20 for the preferred stock, what rate of return is he seeking?

d. johnny is willing to pay $10 for the preferred stock, what rate of return is he seeking?

Explanation / Answer

1) anderson motors inc. has just set the company dividend policy at $0.65 per year. the company plans to be in business forever.

(Round to the nearest cent)

A)what is the price of this stock if an investor wants a return of 5%?

price of this stock = D1/(re-g)

price of this stock = 0.65/0.05

price of this stock = $ 13

B)what is the price of this stock if an investor wants a return of 7%?

price of this stock = D1/(re-g)

price of this stock = 0.65/0.07

price of this stock = $ 9.29

C)what is the price of this stock if an investor wants a return of 10%?

price of this stock = D1/(re-g)

price of this stock = 0.65/0.10

price of this stock = $ 6.5

D)what is the price of this stock if an investor wants a return of 16%?

price of this stock = D1/(re-g)

price of this stock = 0.65/0.16

price of this stock = $ 4.06

E)what is the price of this stock if an investor wants a return of 18%?

price of this stock = D1/(re-g)

price of this stock = 0.65/0.18

price of this stock = $ 3.61

2)Pfender Guitars has a current annual cash dividend policy of $4.00. The price of the stock is set to yield a return of 9%.

(Round to the nearest cent)

A)what is the price of this stock if the dividend will be paid for 9 years and then a liquidating or final dividend of $25?