Compute the present value of an ordinary annuity receiving 7 annual payments of

Question

Compute the present value of an ordinary annuity receiving 7 annual payments of $58 at an interest rate of: 6% 9. Thora is considering buying a BMW bond for $674.205. This bond has a maturity value of $757, maturing in 3 years, with comparable interest rates of 12%, and coupon payments of $43. What should she pay? 10. Parker Sled Manufacturing has been paying an annual dividend of $4.98 for the past 5 years, and plans to continue for the next 4 years. After that, they are expected to grow at 4%. Your required return to hold this stock is 18%. What would you be willing to pay this stock? 11. BAMEB Motorcycles just paid a dividend of $5.27. You expect a growth rate of 21% for 2 years. After that, they are expected to grow at 22%. Your required return to hold this stock is 25%. How much is this stock worth? 12. You received a dividend of $5.63 this morning and are attempting to decide if you should hold onto this stock. You expect this stock to grow at 13% for 9 years. After that, you think they will grow at 18%. Given the level of risk, you need a return of 19%. How much is this stock worth?

Explanation / Answer

8)

Present value of annuity = P×[1-(1÷(1+r)^n)]÷r

r is interest rate per period

P is payment per period

n is number of payments

= $58×[1-(1÷(1+6%)^7)]÷6%

= $323.78

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