Review problem-time value of money applications. Use the appropriate factors from Table 6-4 or Table 6-5 to

Question:

Review problem-time value of money applications. Use the appropriate factors from Table 6-4 or Table 6-5 to answer the following questions.

Required:

a. Spencer Co.'s common stock is expected to have a dividend of $10 per share for each of the next eight years, and it is estimated that the market value per share will be $92 at the end of eight years. If an investor requires a return on investment of 10%, what is the maximum price the investor would be willing to pay for a share of Spencer Co. common stock today?

b. Mario bought a bond with a face amount of $1,000, a stated interest rate of 7%, and a maturity date 10 years in the future for $985. The bond pays interest on an annual basis. Three years have gone by and the market interest rate is now 6%.

What is the market value of the bond today?

c. Alexis purchased a U.S. Series EE savings bond for $75, and six years later received $106.38 when the bond was redeemed. What average annual return on investment did Alexis earn over the six years?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...