Kathy Myers frequently purchases stocks and bonds, but she is uncertain how to d

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 $27,000 for 1,010 shares of Malti Company's common stock. She received a $879 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 $25,000. Kathy would like to earn a return of at least 7% on all of her investments. She is not sure whether the Malti Company stock provided a 7% 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.) Net present value b. Did Kathy Myers earn 7% return on her investment? Yes No

Explanation / Answer

Present value of dividends 2306 =879*2.624 Present value of sales price 20400 =25000*0.816 Less: Purchase price -27000 Net present value -4294 2 No, she did not earn 7% return

Related Questions

Navigate

• Browse (All)
• Browse K
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.