Question

Tara just received a call from a lawyer, who informed her that a distant cousin of hers left her 600 shares of preferred stock. The attorney told Tara that the inheritance was worth approximately $30,000 and the shares paid a dividend of $4.19 per year. What rate of return is the stock getting? _______________ If Tara knows that other investments similar to this one are earning 7%, should she keep the stock or sell it?

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Heather’s Healthy Products, Inc. is talking with its bank about a $600,000 commercial loan.  The loan will be for three years at 7% and will make LEVEL TOTAL PAYMENTS at the end of each of the three years.  Write an amortization schedule for the loan and fill in the following blanks.

Amount of annual TOTAL payment ___________________

Balance of loan at the end of year one __________________

Amount of interest in year two ________________________

Amount of the principal payment in year two ______________

Total amount of interest paid over the life of the loan __________________

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Use the formula for the following problem.

Thomas has $7,000 saved from working summers.  He has it in an account earning 4% with quarterly compounding and will leave it there until he graduates from college in three years.  How much will he have when he graduates?

Answer 1

Answer A-

No. of stocks = 600

Shares's worth = $30,000

Price per share = 30,000/600 = $50 per share

Dividend per share = $4.19

Dividend yield = dividend per share/price per share

Dividend yield = 4.19/50 = 8.38%

She should keep the stock as dividend yield is greater than the return on other invetsments i.e 8.38% > 7.0%

The above answer is for first problem. Please note that in order to get them answered you need to post them as separate questions. We are allowed to answer one question per query or 4 sub parts of one question. Thanks!