Problem 6-6 points Ocean Co. just paid a dividend of $2 per share out of earnings of $4 per share. If the book value per share is $25, what is the expected growth rate in dividends (g)?
Problem 6-6 points Ocean Co. just paid a dividend of $2 per share out of earnings of $4 per share. If the book value per share is $25, what is the expected growth rate in dividends (g)?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
6
Transcribed Image Text:Problem 1-6 points
You would like to have enough money saved to receive a growing annuity for 25 years,
growing at a rate of 4 percent per year, with the first payment of $60,000 occurring exactly one
year after retirement. The interest rate is 12 percent.
How much would you need to save in your retirement fund to achieve this goal?
Problem 2-3 points
Suppose that a young couple has just had their first baby and they wish to ensure that enough
money will be available to pay for their child's college education. Currently, college tuition,
books, fees, and other costs, average $12,500 per year. On average, tuition and other costs
have historically increased at a rate of 4% per year.
Assuming that costs continue to increase an average of 4% per year, How much is the tuition
and other costs for one year for this student in 18 years when she enters college?
Problem 3 – 5 points
For $10,000, you can purchase a five-year annuity that will pay $2,504.57 per year for five
years. The payments occur at the end of each year. Calculate the effective annual interest rate
implied by this arrangement.
Problem 4 – 5 points
Mr. Handsome would like to accumulate $1 million in his pension fund. If the annual interest
rate is 12 percent, how long will it take Mr. Handsome to achieve the goal? (Assume that Mr.
Handsome will deposit the same amount of $300 each month into his pension fund, using
monthly compounding.)
Problem 5 – 6 points
A three-month treasury bill sold for a price of $99.311998 per $100 face value. What is the yield to
maturity of this bond expressed as an EAR?
Problem 6-6 points
Ocean Co. just paid a dividend of $2 per share out of earnings of $4 per share. If the book value
per share is $25, what is the expected growth rate in dividends (g)?
Problem 7-5 points
If the cash flows for Project M are Co = -1,000; C1 = +800; C2=+700; and C3 = -200, calculate
the IRR for the project.
For what range of discount rates does the project have a positive NPV?
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