Victoria (age 65) is about to begin receiving a CPP retirement pension of $11,000 per year. This pension is indexed to the Consumer Price Index (CPI). Assume that the annual pension will be paid in a single year-end payment, the CPI will rise 3% per year, and money is worth 6% compounded annually. What is the current economic value of: a. 20 years of pension benefits?(Round your answer to the nearest cent.) Current economic value of future pension payments S b. 25 years of pension benefits? (Round your answer to the nearest cent.) Current economic value of future pension payments S And then Bank recently announced that its next semiannual dividend (to be paid six months from now) will be $1.00 per share. A stock analyst's best estimate for the growth in future dividends is 5% compounded semiannually. (Do not round the Intermediate calculations. Round your answers to the nearest cent.) a. If you require a rate of return of 10% compounded semiannually on the stock, what maximum price should you be willing to pay per share? Ignore the present value of dividends beyond a 50-year time horizon. Maximum price $ b. What price do you obtain if you do not ignore dividends beyond 50 years? (Hint: Use a large value, say 999, for n in the present value calculation.) Maximum price $
Victoria (age 65) is about to begin receiving a CPP retirement pension of $11,000 per year. This pension is indexed to the Consumer Price Index (CPI). Assume that the annual pension will be paid in a single year-end payment, the CPI will rise 3% per year, and money is worth 6% compounded annually. What is the current economic value of: a. 20 years of pension benefits?(Round your answer to the nearest cent.) Current economic value of future pension payments S b. 25 years of pension benefits? (Round your answer to the nearest cent.) Current economic value of future pension payments S And then Bank recently announced that its next semiannual dividend (to be paid six months from now) will be $1.00 per share. A stock analyst's best estimate for the growth in future dividends is 5% compounded semiannually. (Do not round the Intermediate calculations. Round your answers to the nearest cent.) a. If you require a rate of return of 10% compounded semiannually on the stock, what maximum price should you be willing to pay per share? Ignore the present value of dividends beyond a 50-year time horizon. Maximum price $ b. What price do you obtain if you do not ignore dividends beyond 50 years? (Hint: Use a large value, say 999, for n in the present value calculation.) Maximum price $
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Victoria (age 65) is about to begin receiving a CPP retirement pension of $11,000 per year. This pension is indexed to the Consumer Price Index (CPI). Assume that the annual pension will be paid in a single year-end
payment, the CPI will rise 3% per year, and money is worth 6% compounded annually. What is the current economic value of:
a. 20 years of pension benefits?(Round your answer to the nearest cent.)
Current economic value of future pension payments
b. 25 years of pension benefits? (Round your answer to the nearest cent.)
Current economic value of future pension payments S
And then Bank recently announced that its next semiannual dividend (to be paid six months from now) will be $1.00 per share. A stock analyst's best estimate for the growth in future dividends is 5% compounded
semiannually. (Do not round the Intermediate calculations. Round your answers to the nearest cent.)
a. If you require a rate of return of 10% compounded semiannually on the stock, what maximum price should you be willing to pay per share? Ignore the present value of dividends beyond a 50-year time horizon.
Maximum price $
b. What price do you obtain if you do not ignore dividends beyond 50 years? (Hint: Use a large value, say 999, for n in the present value calculation.)
Maximum price
$
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