Q: the timberlake wardrobe co. Just paid a dividend of $1.00 per share on its st
ID: 2768660 • Letter: Q
Question
Q: the timberlake wardrobe co. Just paid a dividend of $1.00 per share on its stock. The dividends are expected to grow at a constant rate of 4% per year, indefinitely. If investors require an 8% return on the Jackson timberlake wardrobe co., stock, what is the current price? What will the price be in three year?
Ten years ago, tame invested 3,000. Five years ago, jake invested 5,000. Today both jakes and tami's investments are each worth 9,000. Assume that both bake and tami continue to earn their respective rates of return. (1) what is annual interest rate that tami has earned? (2) what is annual interest rate that jake has earned? (3) was tami's investment worth more than jake one year ago? Why?
On your on your 14th birthday, you to received 5000 which you invested at 4.5% interest, compounded annually. Your investment is now worth $8476. how old are you today?
Q: the timberlake wardrobe co. Just paid a dividend of $1.00 per share on its stock. The dividends are expected to grow at a constant rate of 4% per year, indefinitely. If investors require an 8% return on the Jackson timberlake wardrobe co., stock, what is the current price? What will the price be in three year?
Ten years ago, tame invested 3,000. Five years ago, jake invested 5,000. Today both jakes and tami's investments are each worth 9,000. Assume that both bake and tami continue to earn their respective rates of return. (1) what is annual interest rate that tami has earned? (2) what is annual interest rate that jake has earned? (3) was tami's investment worth more than jake one year ago? Why?
On your on your 14th birthday, you to received 5000 which you invested at 4.5% interest, compounded annually. Your investment is now worth $8476. how old are you today?
Q: the timberlake wardrobe co. Just paid a dividend of $1.00 per share on its stock. The dividends are expected to grow at a constant rate of 4% per year, indefinitely. If investors require an 8% return on the Jackson timberlake wardrobe co., stock, what is the current price? What will the price be in three year?
Ten years ago, tame invested 3,000. Five years ago, jake invested 5,000. Today both jakes and tami's investments are each worth 9,000. Assume that both bake and tami continue to earn their respective rates of return. (1) what is annual interest rate that tami has earned? (2) what is annual interest rate that jake has earned? (3) was tami's investment worth more than jake one year ago? Why?
On your on your 14th birthday, you to received 5000 which you invested at 4.5% interest, compounded annually. Your investment is now worth $8476. how old are you today?
Explanation / Answer
Q a) Today's price = current dividend * growth / Required return - growth
= $1 * 1.04 / 0.08 - 0.04 = $26 per share
Dividend after 3 years = $1 * 1.04 * 1.04 * 1.04 = $1.13
Price after 3 years = 1.13 * 1.04 / 0.08 -0.04 = $29.38 per share
Q b) (1) annual interest rate that tami has earned = $9000 - 3000 = 6000 / 10 = 600 /3000 = 20%
(2) annual interest rate that jake has earned = $9000 - 5000 = $4000/5 = 800/5000 = 16%
(3) Yes, tami's investment was worth more than jake one year ago because the rate of interest is higher in Tami's case.
Q c) 5000 ( 1 + 0.045)n = 8476
=> 1.045n = 1.6952
taking log of both side and solving for n, we get
n = 12
Thus, the age is 14 + 12 = 26 years today.
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