1)Your parents are giving you $150 a month for 5 years while you are in college.
ID: 2750666 • Letter: 1
Question
1)Your parents are giving you $150 a month for 5 years while you are in college. At a 6 percent discount rate, what are these payments worth to you when you first start college?
Can you please show/say how you can plug the numbers into a financial calculator to get the answer. ( for the HP 10b11+ preferably).
A)$7,597.83
B)$7,080.00
C)$9,000.00
D)$7,758.83
E)$7,969.83
2)
Ngata Corp. issued 17-year bonds 2 years ago at a coupon rate of 10.3 percent. The bonds make semiannual payments. If these bonds currently sell for 102 percent of par value, what is the YTM?
A)11.04%
B)12.05%
C)9.04%
D)10.04%
E)5.02%
3)Weisbro and Sons common stock sells for $31 a share and pays an annual dividend that increases by 5.5 percent annually. The market rate of return on this stock is 9.50 percent. What is the amount of the last dividend paid by Weisbro and Sons?
A)$1.31
B)$1.18
C)$2.79
D)$1.62
E)$1.12
1)Your parents are giving you $150 a month for 5 years while you are in college. At a 6 percent discount rate, what are these payments worth to you when you first start college?
Can you please show/say how you can plug the numbers into a financial calculator to get the answer. ( for the HP 10b11+ preferably).
A)$7,597.83
B)$7,080.00
C)$9,000.00
D)$7,758.83
E)$7,969.83
2)
Ngata Corp. issued 17-year bonds 2 years ago at a coupon rate of 10.3 percent. The bonds make semiannual payments. If these bonds currently sell for 102 percent of par value, what is the YTM?
A)11.04%
B)12.05%
C)9.04%
D)10.04%
E)5.02%
3)Weisbro and Sons common stock sells for $31 a share and pays an annual dividend that increases by 5.5 percent annually. The market rate of return on this stock is 9.50 percent. What is the amount of the last dividend paid by Weisbro and Sons?
A)$1.31
B)$1.18
C)$2.79
D)$1.62
E)$1.12
Explanation / Answer
1.
Payments are received monthly
Hence,
No. of periods = 5 years * 12 = 60
Interest rate = 6% / 12 = 0.5% = 0.005
Future value of payments = $150 * {1-(1+0.005)-60} / 0.005 = $150 * 51.7255 = $7758.83
2.
To illustrate, base this off of a $1000 par value bond.
PV(price) = 1,020 = $51.50/(1+r)1 + $51.50/(1+r)2 + ... + $51.50/(1+r)30 + 1000/(1+r)30
and solve for r
r = 5.02%
YTM = 5.02% * 2 = 10.04%
3.
Market Price of share = P = $31
Growth rate of dividend = g = 5.5% = 0.055
Return on equity = k = 9.50% = 0.095
By using Gordon growth model,
P = D / (r-g)
$31 = D / (0.095 – 0.055) = D/ 0.04
Current dividend = D = $31 * 0.04 = $1.24
Last dividend = $1.24 / 1.055 = $1.18
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