Question

a. Assume that Social Security promises you $42,000 per year starting when you retire 45 years from today​ (the first $42,000 will get paid 45 years from​ now). If your discount rate is 4%​, compounded​ annually, and you plan to live for 15 years after retiring​ (so that you will receive a total of 16 payments including the first​ one), what is the value today of Social​ Security's promise? The value today of Social​ Security's promise is ​$____?

b. Assume​ Evco, Inc. has a current stock price of $52.64 and will pay a $2.05 dividend in one​ year; its equity cost of capital is 18%. What price must you expect Evco stock to sell for immediately after the firm pays the dividend in one year to justify its current​ price? We can expect Evco stock to sell for ​$____. (Round to nearest cent)

c. You just purchased a share of SPCC for ​$100. You expect to receive a dividend of $5 in one year. If you expect the price after the dividend is paid to be $110​, what toal return will you have earned over the​ year? What was your dividend​ yield? Your capital gain​ rate? The total return you will have earned over the year is ____%. (Round to two decimal places)

d. NoGrowth Corporation currently pays a dividend of $0.55 per​ quarter, and it will continue to pay this dividend forever. What is the price per share of NoGrowth stock if the​ firm's equity cost of capital is 14.8%​? The stock price is ​$____. (Round to nearest cent)

Answer 1

a)