The rate of interest is 2.95%. Which form of compounding will give the highest e

Question

The rate of interest is 2.95%. Which form of compounding will give the highest effective rate of interest? a. daily compounding b. monthly compounding c. annual compounding d. continuous compounding c. It is impossible to tell without knowing the term of the loan. Majestic Homes stock traditionally provides an 8% rate of return. The company just paid a S2 a year dividend which is expected to increase by 5% per year. If you are planning on buying 1.000 shares of this stock next year, how much should you expect to pay per share if the market rate of return for this type of security is 7% at the time of your purchase? What is the net present value of a project that has an initial cash outflow of $12.670 and the following cash inflows? The required return is 11.5%. a. $218.68 b. $370.16 c S768.20 d. SI.249.65 e. $1.371.02

Explanation / Answer

9. Continuos compounding will give the highest effective rate of interest , because it will continuously compounding.

10.

Price of the stock=Dividend(1+growth rate)/(Rate of return-Growth rate)=$2(1+5%)/(8%-5%)=$2*1.05/0.03=$70

Total amount required for to buy 1,000 shares=$70*1,000=$70,000

11.

PV value of the project: Year Cash flow Pv@11.5% PV 0                  -12,670           1.0000       -12,670.00 1                      4,375           0.8969           3,923.77 2                             -             0.8044                        -   3                      8,750           0.7214           6,312.24 4                      4,100           0.6470           2,652.68              218.68

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

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