Kathy Myers frequently purchases stocks and bonds, but she is uncertain how to d
ID: 2534332 • Letter: K
Question
Kathy Myers frequently purchases stocks and bonds, but she is uncertain how to determine the rate of return that she is earning. For example, three years ago she paid $23,000 for 970 shares of Malti Company's common stock. She received a $805 cash dividend on the stock at the end of each year for three years. At the end of three years, she sold the stock for $21,000. Kathy would like to earn a return of at least 10% on all of her investments. She is not sure whether the Malti Company stock provided a 10% return and would like some help with the necessary computations. (Ignore income taxes.) Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables. Required: a. Determine the net present value. (Round your answer to the nearest whole dollar.) & Answer is complete but not entirely correct. Net present value 6,948 b. Did Kathy Myers earn 10% return on her investment? Yes OONOExplanation / Answer
a) Calculate net present value :
Net present value = Present value of cash inflow-Present value of cash outflow
= (805*2.48685+21000*0.75131)-23000
Net present value = -5221
b) No
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