How much would you pay for a share of preferred stock

Assignment Help Finance Basics
Reference no: EM13891854

Answer the following questions assuming the interest rate is 8 percent.

Time Value of Money Problems

a. What is the present value of $1,000 to be received in four years?

b. What is the present value of $1,000 in eight years? Why does the present value fall as the number of years increases?

c. What will be the value in seven years of $12,000 invested today?

d. How much would you pay for the right to receive $5,000 at the end of year 1, $4,000 at the end of year 2, and $8,000 at the end of year 10?

e. How long will it take for a $2,000 investment to double in value?

f. What will be the value in 20 years of $500 invested at the end of each year for the next 20 years?

g. A couple wishes to save $250,000 over the next 18 years for their child's college education. What uniform annual amount must they deposit at the end of each year to accomplish their objective?

h. How long must a stream of $600 payments last to justify a purchase price of $7,500.00? Suppose the stream lasted only five years. How large would the salvage value (liquidating payment) need to be to justify the investment of $7,500.00?

Rate of Return Problems

i. An investment of $1,300 today returns $61,000 in 50 years. What is the internal rate of return on this investment?

j. An investment costs $750,000 today and promises a single payment of $11.2 million in 23 years. What is the promised rate of return, IRR, on this investment?

k. What return do you earn if you pay $22,470 for a stream of $5,000 payments lasting ten years? What does it mean if you pay less than
$22,470 for the stream? More than $22,470?

l. An investment promises to double your money in five years. What is the promised IRR on the investment?

m. The projected cash flows for an investment appear below. What is the investment's IRR?

Year

0

1

2

3

4

5

Cash flow

-$460

-28

75

160

280

190

n. In 1987, a Van Gogh painting, Sunflowers (not reputed to be one of his best), sold at auction, net of fees, for $36 million. In 1889, 98 years earlier, the same painting sold for $125. Calculate the rate of return to the seller on this investment. What does this suggest about the merits of fine art as an investment?

Bank Loan, Bond, and Stock Problems

o. How much would you pay for a 10-year bond with a par value of $1,000 and a 7 percent coupon rate? Assume interest is paid annually.

p. How much would you pay for a share of preferred stock paying a $5-per-share annual dividend forever?

q. A company is planning to set aside money to repay $150 million in bonds that will be coming due in eight years. How much money would the company need to set aside at the end of each year for the next eight years to repay the bonds when they come due? How would your an- swer change if the money was deposited at the beginning of each year?

r. An individual wants to borrow $120,000 from a bank and repay it in six equal annual end-of-year payments, including interest. What should the payments be for the bank to earn 8 percent on the loan? Ignore taxes and default risk.

Reference no: EM13891854

Questions Cloud

Ealuate the social determinants that may impact current : Ealuate the social determinants that may impact current public health issues within the U.S
Article review - the schizophrenic mind : Article Review-  Article- The Schizophrenic Mind by Sharon Begley. Briefly state the Main Idea of this Article
Describe the selected smoking cessation program : Describe the selected smoking cessation program and the behavioral theory that provided the foundation for the program
Is this giving the patient too much power : The term "patient focused care" has dominated the health care environment for some time. Although widely used, its definition is illusive. This concept has been adopted for varying reasons in numerous environments.
How much would you pay for a share of preferred stock : How much would you pay for a 10-year bond with a par value of $1,000 and a 7 percent coupon rate? Assume interest is paid annually. How much would you pay for a share of preferred stock paying a $5-per-share annual dividend forever?
Conflict arises in organizations with regularity : Conflict arises in organizations with regularity. Conflict within the complex health care environment may be more prevalent than that found in other, less intense organizations. All conflict is not onerous.
Case study on fetal abnormality : Case Study: Fetal Abnormality
What rate of interest before income taxes will be paid : pproximately what rate of interest before income taxes will actually be paid if the lot is purchased on this time payment plan?
What will be the amount of balloon payment six year from now : The APR interest rate on the loan with monthly compounding is 7 percent. What will be the amount of the balloon payment six years from now?

Reviews

Write a Review

 

Finance Basics Questions & Answers

  Prepare an income statement

The adjusted trial balance columns of the worksheet for Goode Corporation are as follows:

  Compute the percentage total return

Suppose a stock had an initial price of $91 per share, paid a dividend of $2.40 per share during the year, and had an ending share price of $102. Compute the percentage total return.

  40 million in new securities are added to the portfolio

the duration of a 100 million portfolio is 10 years. 40 million in new securities are added to the portfolio

  Objective type questions on bond valuation

Objective Type questions on bond valuation and Long-term debt that matures within one year and is to be converted into stock should be reported

  What is the firm roe

A firm has a tax burden ratio of 0.7, a leverage ratio of 1.4, an interest burden of 0.4, and a return on sales of 13%. the firm generates $2.50 in sales per dollar of assets. What is the firm's ROE? (Do not round intermediate calculations. Rou..

  Fnd the least expensive form of permanent insurance

1. the least expensive form of permanent insurance protection isa. term.b. straight life.c. limited payment.d.

  What is the free cash flow to the firm

If the tax rate is 35%, capital expenditures are $10 million, and increases in working capital are $10 million, what is the free cash flow to the firm?

  Artifacts critical to the success of a project

Why are the Project Charter and Project Scope Statement artifacts critical to the success of a project? Describe some of the key elements of these artifacts.

  Determine primary roles of the sec

Determine three primary roles of the SEC and explain how does the Sarbanes Oxley Act augment the SEC's role in managing financial governance? Do you think that businesses are more ethical after the passing of the Sarbanes Oxley Act?

  Interesting though when i think of the ethical perspective

writing from the perspective of adam smith an economic recession is caused from personal self-interest private

  Compute firms retained earnings balance

A company had a year end 2004 retained earnings balance of $220,000. The company reported net profits after taxes of $50,000 in 2005 & paid dividends in 2005 of $30,000.

  Calculate net present value for a company

The tax rate is 30%, and 70% of franking credits are claimed by shareholders. Propfix requires a return of 15% pa after tax on its investments. Should they make the upgrade

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd