1.) What is the net present value of the following real estate investment discou

Question

1.) What is the net present value of the following real estate investment discounted at 12%?

*Year one - $10,000

*Year two - $12,000

*Year three - $8,000

*Year four - $5,000

2.) Five years ago Widget Inc. yearly dividends were $1.18 and this year their dividends are $2.56. What has been the five year nominal growth of these dividends?

3.) Here is a list of five individual FICO credit scores. What is their average and standard deviation?

*671

*745

*810

*778

*801

4.) Widget Inc. Stock has the following probabilities of return. What is its mu and sigma? There is a 30% chance for a good economic outlook and the stock will increase by 25% There is a 40% chance for an okay economic outlook and the stock will increase by 5% There is a 30% chance for a bad economic outlook and the stocks will decline by -25%

Explanation / Answer

1)

Present value of real estate investment = $10,000/1.12 + $12,000/1.122 + $8,000/1.123 + $5,000/1.124 = $27,366.73

2)

Nominal growth rate = ($2.56/$1.18)1/5 – 1 = 0.1675 = 16.75%

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