Question

You are planning to make an investment in a fund that has 5 years to maturity...

You are planning to make an investment in a fund that has 5 years to maturity and just made a dividend payment of $10 per share. Future payments are expected to increase at a rate of 8% per year over the next 5 years, which is your expected holding period for the investment. If your required rate of return is 11% p.a., how much would you be willing to pay for each share of the fund in which you intend to invest?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1
Fund
Discount rate 0.11
Year 0 1 2 3 4 5
Cash flow stream 0 10.8 11.664 12.59712 13.60489 14.69328
Discounting factor 1 1.11 1.2321 1.367631 1.5180704 1.685058
Discounted cash flows project 0 9.72973 9.466764 9.210906 8.9619622 8.719747
NPV = Sum of discounted cash flows
NPV Fund = 46.09
Where
Discounting factor = (1 + discount rate)^(Corresponding period in years)
Discounted Cashflow= Cash flow stream/discounting factor
0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
You are evaluating an investment that will pay you $5,000 in two years and $6,000 in...
You are evaluating an investment that will pay you $5,000 in two years and $6,000 in four years. If your required return is 8%p.a. compounded annually, how much is this investment worth? $9,430.73 $8,696.87 $8,085.33 $10,185.19 Which of the following is NOT a characteristic of equity? There is no maturity date. Shareholders are paid last and receive whatever is left after paying operating expenses and debt holders. Dividend payments are fixed and do not change year to year. Dividend payments...
You are planning for your future needs and retirement. You want to receive $10,000 ten years...
You are planning for your future needs and retirement. You want to receive $10,000 ten years from today and a retirement annuity of $50,000 per year for 15 years with the first payment 15 years from today. To pay for this, you will make 5 payments of $A per year beginning today and 4 annual payments of $2A with the first payment 13 years from today. With an interest rate of 8% what is the value for A?
1. A company’s dividend grows at a constant rate of 5 percent p.a.. Last week it...
1. A company’s dividend grows at a constant rate of 5 percent p.a.. Last week it paid a dividend of $1.47. If the required rate of return is 16 percent p.a., what is the price of the share 4 years from now? (round to nearest cent) Select one: a. $17.06 b. $16.24 c. $9.42 d. $25.41 2. After paying a dividend of $1.90 last year, a company does not expect to pay a dividend for the next year. After that...
Consider a pension plan that will pay $10,000 once a year for a 5-year period (5...
Consider a pension plan that will pay $10,000 once a year for a 5-year period (5 annual payments). The first payment will come in exactly 5 years (at the end of year 5) and the last payment in 9 years (at the end of year 9). What is the duration of the pension obligation? The current interest rate is 10% per year for all maturities. To generate the scheduled pension payments, the pension fund wants to invest the present value...
You are considereding an investment that promises to make 10 payments of $5000. The payments will...
You are considereding an investment that promises to make 10 payments of $5000. The payments will be made every two years. The only twist is that the first payment will be received in one year. If you required a return of 10% per year compounded semi-annually, how much would you be willing to pay for this investment? (using casio fx-9750GII)
You are planning to save for retirement over the next 25 years. To do this, you...
You are planning to save for retirement over the next 25 years. To do this, you will invest $3,000 a quarter in a stock account and $1,000 a quarter in a bond account. These investments will be made at the beginning of each quarter. The return of the stock account is expected to be 8%, and the bond account will pay 4%. When you retire, you will combine your money into an account with a 6% return. How much can...
You are planning for your future needs and retirement. $100,000 10 years from today and a...
You are planning for your future needs and retirement. $100,000 10 years from today and a retirement annuity of $80,000 per year for 20 years with the first payment 20 years from today. To pay for this, you will make 3 annual payments of $x per year beginning today and 2 annual payments of $x per year with the first payment 7 years from today. With an interest rate of 8%, what is the value for x?
A company borrowed $45,000 for 3 years at 5% compounded monthly. It will NOT make any...
A company borrowed $45,000 for 3 years at 5% compounded monthly. It will NOT make any payments on this loan prior to maturity. (a) Find the total future value the company will need to accumulate to pay off this debt. Show all work. (b) Use the result of part (a) to find the quarterly sinking fund payment needed to accumulate this maturity value (over the the 3 years), assuming 4% rate. show all work
You are chairperson of the investment fund for the Continental Soccer League. You are asked to...
You are chairperson of the investment fund for the Continental Soccer League. You are asked to set up a fund of semiannual payments to be compounded semiannually to accumulate a sum of $280,000 after fifteen years at a 8 percent annual rate (30 payments). The first payment into the fund is to take place six months from today, and the last payment is to take place at the end of the fifteenth year. Use Appendix A and Appendix C for...
Aroma Coffee Corp. (ACC) has just paid $1.00 dividend. ACC plans an investment program, which will...
Aroma Coffee Corp. (ACC) has just paid $1.00 dividend. ACC plans an investment program, which will allow the company to grow its assets by 15 % per year for the next four years. The investments are finance by the retained earnings. Starting from year 5 onwards, the growth rate is expected to return to the industry’s average 6% growth rate and remain at this level in the foreseeable future. You are planning to purchase the ACC stock and estimate that...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT