1) What is the present value of a preferred stock (which pays unchanging dividen

Question

1) What is the present value of a preferred stock (which pays unchanging dividends into perpetuity) paying a $6.50 annual dividend if the discount rate is 11%?

$55.79

$59.09

$45.59

$65.00

2) If you contribute $6,000 at the beginning of each year into your 401k, approximately how much will you have at the end of 40 years if the annual return is 11%?

$3,875,000

$3,490,950

$2,750,000

$266,400

3) Using your answer from the prior question, if inflation rises 3.5% over the same period, approximately how much will you have in current dollars?

$132,615

$978,720

$881,720

$1,363,539

4) You are considering a new car purchase, but will need financing. If the car’s price is $30,000 and the finance rate is 4% over 4 years, what is the monthly cost (payments are made at the beginning of the month)?

$700

$675

$677

$625

a.

$55.79

b.

$59.09

c.

$45.59

d.

$65.00

Explanation / Answer

1)

Hence, correct option is (B) $59.09

Present value of a preferred stock Annual dividend÷Required rate Here, Annual dividend $                                                      6.50 Required rate 11.00% Present value of a preferred stock $                                                    59.09 6.50/11%

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