1) Calculate the present value of $4,000 received five years from today if your

Question

1) Calculate the present value of $4,000 received five years from today if your investments pay (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16)) 11 percent compounded quarterly?

2) A stock you are evaluating just paid an annual dividend of $3.00. Dividends have grown at a constant rate of 1.3 percent over the last 15 years and you expect this to continue.

If the required rate of return on the stock is 16.1 percent, what should the fair value be four years from today? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

3) Calculate the present value of the following annuity streams:

$8,000 received each quarter for 6 years on the last day of each quarter if your investments pay 7 percent compounded quarterly. (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

b)

$8,000 received each quarter for 6 years on the first day of each quarter if your investments pay 7 percent compounded quarterly. (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

If the required rate of return on the stock is 16.1 percent, what should the fair value be four years from today? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

1) Calculate the present value of $4,000 received five years from today if your investments pay (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16)) 11 percent compounded quarterly? Given that the interest rate is 11 percent compounded quarterly, the effective annual interest rate works out to 11.4621 or 11.46% Hence, the present value will be $ 18,267.63 2) A stock you are evaluating just paid an annual dividend of $3.00. Dividends have grown at a constant rate of 1.3 percent over the last 15 years and you expect this to continue. If the required rate of return on the stock is 16.1 percent, what should the fair value be four years from today? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))   Expected fair value $    The dividend after 4 years will be 3.16 $ Since the required rate of return on the stock is 16.1%, the fair value of the stock will be 3.16 / 16.1% = 19.63 $ 3) Calculate the present value of the following annuity streams: $8,000 received each quarter for 6 years on the last day of each quarter if your investments pay 7 percent compounded quarterly. (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))   Present value $    The effective annual interest rate, based on the rate given is 7.1859 or 7.19%. Hence,the amount will be calculated @ $32,000 for 5 years (last day of each quarter), the Present Value of which works out to $ 130,541.52 b) $8,000 received each quarter for 6 years on the first day of each quarter if your investments pay 7 percent compounded quarterly. (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))   Present value $    The effective annual interest rate remaining as in a) above, the Present Value will be worked out for a period of 6 years (first day of each quarter), which comes to $ 151,638.70.

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