24. Gimli wants to double the number of gold pieces he has. He has made an agree

Question

24. Gimli wants to double the number of gold pieces he has. He has made an agreement with Smaug to earn 7% each how long it will take for his investment to double to $60,000? year compounded annually. He started with $30,000 and wants to know a. 4.96 years b.Error 5-the answer cannot be computed with the information given. c.-10 years d. 10.24 years e. 2.5 years Answer: 25. Crookshanks has finally built a better mousetrap and everyone agrees they should be able to grow dividends at 6.67% per year for the foreseeable future. If the current price of the company stock is $40 per share and the company just paid a dividend of $3 per share, what must be the required rate of return expectation in the marketplace? a. 14.67% b. 7.5% c. 8.0% d. 10.73% Answer:

Explanation / Answer

Answer 24.

Amount invested = $30,000
Desired sum = $60,000
Annual interest Rate = 7%

Let investment will double in n years

$30,000 * 1.07^n = $60,000
1.07^n = 2
n = ln(2) / ln(1.07)
n = 10.24 years

So, $30,000 will double itself in 10.24 years

Answer 25.

Current dividend, D0 = $3.0
growth rate, g = 6.67%
Current price, P0 = $40

D1 = $3.0 * 1.0667
D1 = $3.2001

Required Rate of Return = D1 / P0 + g
Required Rate of Return = $3.2001 / $40 + 0.0667
Required Rate of Return = 0.1467 = 14.67%

So, required rate of return is 14.67%

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