Felix wants to have $28,000 four years from now to buy a new car. He wants to ma
ID: 2773146 • Letter: F
Question
Felix wants to have $28,000 four years from now to buy a new car. He wants to make one deposit to fund this expenditure. How much does he have to deposit if he will earn 5.5% per year on his investment?
$22,602.07
$24,354.09
$25,608.12
$22,125.16
XYZ plans to issue some $60 par preferred stock with a 6% dividend. A similar stock is selling on market for $70. XYZ must pay flotation costs of 5% of the issue price. What is the cost of the preferred stock?
5.99%
5.41%
6.3%
4.99%
1.$22,602.07
2.$24,354.09
3.$25,608.12
4.$22,125.16
XYZ plans to issue some $60 par preferred stock with a 6% dividend. A similar stock is selling on market for $70. XYZ must pay flotation costs of 5% of the issue price. What is the cost of the preferred stock?
1.5.99%
2.5.41%
3.6.3%
4.4.99%
Explanation / Answer
Solution.
1. Calculation of investment Amount.
$22,602.07
2.
2.5.41%
flotation costs of 5% = 5%/100 = .05
Subtract the decimal of the flotation cost from 1 = 1- .05 = .95
Multiply the market price for the preferred stock by one minus the flotation cost. = market price $70 x .95 = 66.5
Divide the dividend paid by the preferred stock by this number = $3.60 / 66.5 = .0541 or 5.41%
year Investment Interest rate Interest Amount 1 22,602 5.50% 1,243.11 23,845.18 2 23,845 5.50% 1,311.49 25,156.67 3 25,157 5.50% 1,383.62 26,540.29 4 26,540 5.50% 1,459.72 28,000.00
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