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3. Rates of Return (RoR) You are considering purchasing one of following two stocks (A&B) today. And you are planning to sell it in 10
3. Rates of Return (RoR) You are considering purchasing one of following two stocks (A&B) today. And you are planning to sell it in 10 years, during which you receive dividends every year. Stock A: current stock price = $20, D, -D (dividend payments from year 1 thru 5) = $0.85, 26-D. (dividend payments from year 6 thru 10) = $1.00, expected resale stock price (Pd) = $40 Stock B: current stock price = $45, D, -D= $0.90, Do-D20 = $1.15, expected resale stock price (Pd): = $65 a. Find the Average Annual Rate of Return (RoR) for each stock using both CF and IRR keys of your financial calculator. (12 pts) b. Based on the answers above, which will be a better investment. (3 pts) 3. Rates of Return (RoR) You are considering purchasing one of following two stocks (A&B) today. And you are planning to sell it in 10 years, during which you receive dividends every year. Stock A: current stock price = $20, D, -D (dividend payments from year 1 thru 5) = $0.85, 26-D. (dividend payments from year 6 thru 10) = $1.00, expected resale stock price (Pd) = $40 Stock B: current stock price = $45, D, -D= $0.90, Do-D20 = $1.15, expected resale stock price (Pd): = $65 a. Find the Average Annual Rate of Return (RoR) for each stock using both CF and IRR keys of your financial calculator. (12 pts) b. Based on the answers above, which will be a better investment. (3 pts)
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