Question

1. Tom's Pets pays an annual dividend that increases by 1.25 percent per year, commands a market rate of return of 14.5 percent, and sells for $18 a share. What is the expected amount of the next dividend.

A

$4.25

B

$2.39

C

$2.09

D

$4.85

E

$1.25

2. The City of Norfolk offers 8 percent coupon bonds with semiannual payments and a yield to maturity of 7 percent. The bonds mature in seven years. What is the market price per bond if the face value is $1000.

A

$1054.60

B

$737.63

C

$1278.15

D

$649.92

E

$838.32

3. Ten years ago, Material Management set aside $145,000 in case of a financial emergency. Today, that account has increased in value to $360,545. What rate of interest is the firm earning on this money?

A

17%

B

4.36%

C

6.34%

D

9.54%

E

11.23%

4. You are borrowing $18,750 to buy a new car after graduation. The terms of the loan call for monthly payments for five years at 6.85% interest. What is the amount of each payment?

A

$234.18

B

$369.94

C

$455.46

D

$256.36

E

can not answer, need more data

5. A project will produce cash inflows of $5,400 a year for 3 years with a final cash inflow of $2,400 in Year 4. The project's initial cost is $13,400. What is the net present value if the required rate of return is 14.2 percent?

A

$485.92

B

$325.32

C

$505.92

D

$623.25

E

$273.06

Answer 1

Dear student, only one question is allowed at a time. I am answering the first question

1)

Price of a constant growth stock is given by

D1 / ( Re – G )

Where,

G = Growth rate = 1.25% or 0.0125

Re = Required rate of return = 14.5% or 0.145

D1 = Expected Dividend next year

= Current Dividend x ( 1 + Growth Rate)

= Current Dividend x ( 1.0125 )

Price of the stock = $18

So, putting these values in above equation we get,

$18 = Current Dividend x ( 1.0125 ) / ( 0.145 – 0.0125)

So, Current dividend = $18 x 0.1325 / 1.0125

= $2.36

So, Expected amount of next dividend

= Current Dividend x ( 1 + Growth Rate )

= $2.36 x 1.0125

= $2.39

So, as per above calculations, option B is the correct option