Sherwin Williams will receive $21,250 a year for the next 16 years as a result o
ID: 2818313 • Letter: S
Question
Sherwin Williams will receive $21,250 a year for the next 16 years as a result of a picture he has painted. Use Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods.
a. What is the present value of these payments if the discount rate is 6 percent? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Mr. Dow bought 100 shares of stock at $27 per share. Three years later, he sold the stock for $33 per share.
What is his annual rate of return? Use Appendix B for an approximate answer, but calculate your final answer using the financial calculator method. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Explanation / Answer
a.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate
=$21250[1-(1.06)^-16]/0.06
=$21250*10.10589527
which is equal to
=$214,750.27(Approx).
b.We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.
33=27(1+r/100)^3
(33/27)^(1/3)=(1+r/100)
(1+r/100)=1.0692
r=(1.0692-1)*100
=6.92%(Approx).
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