You own a security that provides an annual dividend of $155 forever. The securit

Question

You own a security that provides an annual dividend of $155 forever. The security's annual return is 9%. What is the present value of this security? Round your answer to the nearest cent. PV of cash flow stream A rookie quarterback is negotiating his first NFL contract- His opportunity cost is 10%. He has been offered three possible 4-year contracts. Payments are guaranteed, and they would be made at the end of each year. Terms of each contract are listed below: As his adviser, which contract would you recommend that he accept? Future value for various compounding periods Find the amount to which S500 will grow under each of these conditions 7% compounded annually for 5 years. Round your answer to the nearest cent. S?? 7% compounded semiannually for 5 years. Round your answer to the nearest cent. $?? 7% compounded quarterly for 5 years. Round your answer to the nearest cert. S??_7% compounded monthly for 5 years. Round your answer to the nearest cent. sr?_7% compounded daily for 5 years. Round your answer to the nearest cent. S ??_Why docs the observed pattern of FVs occur?

Explanation / Answer

Quantitative Problem Answer

Present value of security =Annual Dividend/Required rate of return = $155/9% = $1722.22

5-20

Answer :- Contract 2 as it gives Quarterback highest Presnt valu of $11,927.122.46, therefore he should accept contract 2

Problem P-23

a. If $500 will grow 7% compunded annually for 5 years.

FV = P (1+R)^N = $500 (1+0.07)^5 = $701.28

b. If $500 will grow 7% compunded semi annually for 5 years.

FV = P (1+R)^N = $500 (1+0.035)^5*2 =  $500 (1+0.035)^10 = $705.30

c. If $500 will grow 7% compunded quarterly for 5 years.

FV = P (1+R)^N = $500 (1+0.0175)^5*4 =  $500 (1.0175)^20= $707.39

d. If $500 will grow 7% compunded monthly for 5 years.

FV = P (1+R)^N = $500 (1+0.005833)^5*12 =  $500 (1.005833)^60= $ 708.8

e.If $500 will grow 7% compunded daily for 5 years.

FV = P (1+R)^N = $500 (1+0.0001944)^5*360 =  $500 (1.00019444)^1800= $ 709.51

f. Why did the observed pattern of FV occur?

The FV increases because as the componding periods increase, interest is earned on interest more frequently.

Year Contract 1 $ PVF @10% PV Contract 2 $ PVF @10% PV Contract 3 $ PVF @10% PV 1 3,000,000 0.9091 2,727,272.73 2,500,000 0.9091 2,272,727.27 6,500,000 0.9091 5,909,090.91 2 3,000,000 0.8264 2,479,338.84 3,500,000 0.8264 2,892,561.98 1,000,000 0.8264      826,446.28 3 3,000,000 0.7513 2,253,944.40 4,000,000 0.7513 3,005,259.20 1,000,000 0.7513      751,314.80 4 3,000,000 0.6830 2,049,040.37 5,500,000 0.6830 3,756,574.00 1,000,000 0.6830      683,013.46 Total PV 9,509,596.34 Total PV 11,927,122.46 Total PV 8,169,865.45

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.