Need Help with these, thanks. Explanations are helpful I have answers from study
ID: 2754019 • Letter: N
Question
Need Help with these, thanks. Explanations are helpful I have answers from study guide
Kobe Durant is considering the purchase of a car, which will cost him $125,000. He will borrow the entire purchase price and make monthly payments over the next five years. The first payment is due next month and the interest rate is 3.00%. He will owe $____ on the car immediately following the 27thpayment.
71,060.56
73,182.94
75,798.22
77,434.28
79,282.85
An investment will pay $32,000 per year forever beginning6 years from today. If the relevant rate is 10% compounded monthly, the investment is worth $______ today.
164,210.60
175,604.75
181,154.33
198,694.82
202,346.54
McDavid’s common stock has a beta of 1.40. The market risk premium, is 5% and the risk-free rate, rf, is 3%. McDavid’s expects to pay a dividend of $2.10 next year, and the dividend is expected to grow at 4% per year forever. The price of McDavid’s common stock should be $________.
31.50
35.00
38.50
42.00
42.50
American Graphics just paid a dividend of $3.00. AG’s dividends will grow at 25% for the next two years and then 30% for the next year. After that, the dividend will grow at 4% forever. Assuming a 11% cost of equity, the current stock price should be $_____.
58.15
60.02
70.02
77.84
79.65
Explanation / Answer
1. 71,060.56
Monthly payment = 3%/12 * 125000 * (1 + 0.0025)12*5
(1+ 0.0025)12*5 - 1
= 312.5 * 1.162 / 1.162 - 1
= 2241.5
balance payment after 27th payment = 125000 * (1 + 3%*12)60 - 2241.5[( 1 + 3%/12)32 - 1]
3%/12
= 125000 * (1.162) - [2241.5(1.083 - 1) / 0.0025]
= 145250 - 74417.8
= 70832.2 (Approx .71,060.56)
3. $35
required rate of retrun = risk free rate + beta * market risk premium
=0.03 + 1.4*0.05
= 0.03 * 0.07
= 10%
required rate of retrun = next dividend / current price + growth rate
0.10 = $2.10 / current price + 0.04
current price = $2.10 / (0.10 - 0.04)
= $35
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