Question

A financial instrument just paid the investor $100 last year. If the cash flow is expected...

A financial instrument just paid the investor $100 last year. If the cash flow is expected to last forever and increase each year at 3%, and with a discount rate of 8%, what should be the price that you are willing to pay for this instrument?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Cashflow just paid (CF0) = $100

Growth rate of cashflow(g) = 3% per year forever

discount rate(r) = 8%

Calculating the Price you are willing to pay for this instrument:-

Price = $2060

So, the Price you are willing to pay for this instrument is $2060

If you need any clarification, you can ask in comments.    

If you like my answer, then please up-vote as it will be motivating       

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
A financial instrument promises to pay $1,000 per year forever. If the appropriate discount rate is...
A financial instrument promises to pay $1,000 per year forever. If the appropriate discount rate is 8%, what should be the price that you are willing to pay for this instrument? Group of answer choices $14,500 $12,500 $10,000 not enough information
A financial engineer designs a new financial instrument that he calls, the Stax. This instrument gives...
A financial engineer designs a new financial instrument that he calls, the Stax. This instrument gives the holder access to the following cashflows: For the first 7 years, the holder receives $100 per year starting one year from today (a total of 7 payments) The holder does not receive any cashflows for years 8 or 9 Starting at the end of year 10, the holder receives $75 growing at a rate of 9% per year forever The holder has to...
Temple Lunch​ Trucks, Inc. just paid a dividend of​ $2.00. Dividends are expected to grow at...
Temple Lunch​ Trucks, Inc. just paid a dividend of​ $2.00. Dividends are expected to grow at a rate of​ 3% per year from here on out. If the​ risk-free rate is​ 2%, the MRP is​ 8%, and Temple Lunch​ Trucks’ stock is only​ 40% as risky as the​ market, what is the most that you should be willing to pay for a share of this stock​ today?
A company is considering a project that is expected to generate its first cash flow in...
A company is considering a project that is expected to generate its first cash flow in the amount of $1 million in 6 years. The cash flows thereafter are expected to grow 15% a year until the last cash flow in year 24. Appropriate discount rate of the project is 13%. What is the maximum investment the company should dedicate for this project today? A reevaluation of the project shows that starting from year 25 the project is going to...
An investment promises the following cash flow stream: Year 0 Year 1 Year 2 Year 3...
An investment promises the following cash flow stream: Year 0 Year 1 Year 2 Year 3 Year 4 Cashflow 1000 2000 3000 5000 The discount rate is 5%. What is the maximum price that you are willing to pay for this investment now?
A firm projects that dividends will grow at a rate of 6% per year for four...
A firm projects that dividends will grow at a rate of 6% per year for four years and then will grow at a rate of 3% per year forever. The stock's required return is 8% and the last annual dividend paid was $1.80. The most an investor should be willing to pay for this stock today is
Investor A has just sold a ten-year $10,000 corporate bond to Investor B for $8,500. Investor...
Investor A has just sold a ten-year $10,000 corporate bond to Investor B for $8,500. Investor A purchased the bond four years ago for $9,500.     The bond coupon rate is 8 percent per year paid annually and Investor A has just received the dividend for year 4. Draw the cash flow diagram for Investor A Calculate the Rate of Return for Investor A Draw the cash flow diagram for Investor B Investor B has a MARR of 10% per year...
Investor A has just sold a ten-year $10,000 corporate bond to Investor B for $8,500. Investor...
Investor A has just sold a ten-year $10,000 corporate bond to Investor B for $8,500. Investor A purchased the bond four years ago for $9,500. The bond coupon rate is 8 percent per year paid annually and Investor A has just received the dividend for year 4. a) Draw the cash flow diagram for Investor A b) Calculate the Rate of Return for Investor A c) Draw the cash flow diagram for Investor B d) Investor B has a MARR...
You are considering the following project. What is the expected cash flow for the last year...
You are considering the following project. What is the expected cash flow for the last year (year 3)? This cash flow includes operating cash flow and terminal cash flow. Project life: 3 years Equipment: Cost: $20,000 Economic life: 3 years Salvage value: $4,000 Initial investment in net working capital: $2,000 Revenue: $13,000 in year 1, with a nominal growth rate of 6% per year Fixed cost: $3,000 in year 1 Variable cost: 30% of revenue Corporate tax rate (T): 40%...
APCE common stock just paid a dividend of $1.00 per share, but its dividend is expected...
APCE common stock just paid a dividend of $1.00 per share, but its dividend is expected to grow at 10 percent per year for four years and then grow at 6 percent per year forever. How much should you be willing to pay for the APCE stock? Assume 12% required return. 20.24 27.29 16.62 25.83
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT