Assuming an interest rate of 10 percent, calculate the present value of the foll
ID: 2714040 • Letter: A
Question
Assuming an interest rate of 10 percent, calculate the present value of the following streams of yearly payments: $1,000 per year, forever, with the first payment one year from today. $500 per year, forever, with the first payment two years from today. $2,420 per year, forever, with the first payment three years from today. Given an interest rate of 10 percent per year, what is the value at the end of year 5 of a perpetual stream of $120 annual payments starting at the end of year 9? Harris, Inc., paid a $3 dividend yesterday. If the firm raises its dividend 5 percent every year and the appropriate discount rate is 12 percent, what is the price of Harris stock?Explanation / Answer
3-14 a Present value = Payment after 1 year /rate
= 1000/ .10
= 10,000
b) pResent value = Value at year 1 *PVF@10%,1
= (500/ .10) * .90909
= 5000 *.90909
= $ 4545.45
c)Present value =Value at end of year2 *PVF@10%,2
= (2420/.10) * .82645
= 24200 * .82645
= $ 20000.09
3-15 - Value at end of year13 = annutiy * FVAF
= 120 * 6.1051
= $ 732.61
3.16 - Price = D0(1 +g) / (Rs -g)
= 3(1+.05)/(.12-.05)
= 3* 1.05 / .07
= $ 45 per share
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