Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 4: 23BP (page 283)

Jack Hammer invests in a stock that will pay dividends of \(2.00 at the end of the first year; \)2.20 at the end of the second year; and \(2.40 at the end of the third year. Also, he believes that at the end of the third year he will be able to sell the stock for \)33. What is the present value of all future benefits if a discount rate of 11 percent is applied? (Round all values to two places to the right of the decimal point.)

Short Answer

Expert verified

The present value is $29.47.

Step by step solution

01

Identification of the required information

Dividend at Year 1 (D1) = $2

Dividend at Year 2 (D2) = $2.2

Dividend at Year 3 (D3) = $2.4

Sale value at Year 3 (S) = $33

Interest Rate (i) = 11%

02

Present value (PV)

PV=D1×1+i-n1+D2×1+i-n2+D3×1+i-n3+S×1+i-n3=$2(1+11%)-1+$2.2×(1+11%)-2+$2.4(1+11%)-3+$33×(1+11%)-3=$29.47=$29.47

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

The Clearinghouse Sweepstakes has just informed you that you have won \(1 million. The amount is to be paid out at the rate of \)20,000 a year for the next 50 years. With a discount rate of 10 percent, what is the present value of your winnings?

You invest a single amount of $10,000 for 5 years at 10 percent. At the end of 5 years you take the proceeds and invest them for 12 years at 15 percent. How much will you have after 17 years?

Question: Determine the amount of money in a savings account at the end of 10 years, given an initial deposit of $5,500 and a 12 percent annual interest rate when interest is compounded (a) annually, (b) semiannually, and (c) quarterly.

b. Would the present value of the funds in part a be enough to buy a $2,900 concert ticket?

List five different financial applications of the time value of money.
See all solutions

Recommended explanations on Business Studies Textbooks

Corporate Finance

Read Explanation

Business Case Studies

Read Explanation

Introduction to Business

Read Explanation

Operational Management

Read Explanation

Business Operations

Read Explanation

Strategic Analysis

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free