You are considering the purchase of an investment that would pay you $6,000 per year for Years 1-5, and $4,000 per year for Years 6-7. If you require an 8 percent rate of return, and the cash flows occur at the end of each year, then how much should you be willing to pay for this investment?
Question 2
You are given the following cash flow information. The appropriate discount rate is 4 percent for years 1-4 and 4 percent for years 5-10. Payments are received at the end of the year.
Year Amount Interest Rate
1-4 $8,000 4%
5-10 $11,000 4%
What should you be willing to pay right now to receive the income stream above?
Question 4
A share of common stock has a current price of $85.68 and is expected to grow at a constant rate of 8 percent. If you require a 10 percent rate of return, what is the current dividend, Do, on this stock?
Question 6
Given the following probability distribution, what is the expected return and the standard deviation of returns for Security J?
State Pi Ri
1 40% 10%
2 25% 12%
3 35% 18%
Question 8
General Dynamics has a bond with 30 years to maturity has a face value of $1000. The bond pays a 5 percent semiannual coupon, and the bond has a 7 percent nominal yield to maturity. What is the price of the bond today?
Sample Solution
