Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Answer the following questions using appropriate factor(s) from the tables attached. Round the PV factors to 4 decimals.) a) Spencer Co.'s common stock is expected

Answer the following questions using appropriate factor(s) from the tables attached. Round the PV factors to 4 decimals.)

a) Spencer Co.'s common stock is expected to have a dividend of $3 per share for each of the next fifteen years, and it is estimated that the market value per share will be $111 at the end of fifteen years. If an investor requires a return on investment of 14%, what is the maximum price the investor would be willing to pay for a share of Spencer Co. common stock today?(Do not round intermediate calculations. Round your answer to 2 decimal places.). Maximum Price _____________

b)Mario bought a bond with a face amount of $1,000, a stated interest rate of 6%, and a maturity date thirteen years in the future for $980. The bond pays interest on an annual basis. Three years have gone by and the market interest rate is now 10%. What is the market value of the bond today?(Do not round intermediate calculations. Round your answer to 2 decimal places.) Market Value ______

c)Alexis purchased a U.S. Series EE savings bond for $200, and twelve years later received $779.12 when the bond was redeemed. What average annual return on investment did Alexis earn over the twelve years? Alexis' average annual return on investment _____

image text in transcribed a) Spencer Co.'s common stock is expected to have a dividend of $3 per share for each of the next fifteen years, and it is estimated that the market value per share will be $111 at the end of fifteen years. If an investor requires a return on investment of 14%, what is the maximum price the investor would be willing to pay for a share of Spencer Co. common stock today? (Do not round intermediate calculations. Round your answer to 2 decimal places.). Maximum Price = Annual Dividend*PVIFA(rate,nper) + Market value at the end of 15 year*PVIF(rate,nper) Maximum Price = 3*PVIFA(14%,15) + 111*PVIF(14%,15) Maximum Price = 3*6.1422 + 111*0.1401 Maximum Price = 33.98 b) Mario bought a bond with a face amount of $1,000, a stated interest rate of 6%, and a maturity date thirteen years in the future for $980. The bond pays interest on an annual basis. Three years have gone by and the market interest rate is now 10%. What is the market value of the bond today? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Market Value = Annual Interest*PVIFA(10%,10) + Maturity Value*PVIF(10%,10) Market Value = (6%*1000)*6.1446 + 1000*0.3855 Market Value = $ 754.18 c) Alexis purchased a U.S. Series EE savings bond for $200, and twelve years later received $779.12 when the bond was redeemed. What average annual return on investment did Alexis earn over the twelve years? Alexis' average annual return on investment _____ PV Factor = 200/779.12 PV Factor = 0.2567 By seeing table in 12 year We find Average annual return on investment = 12%

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Managerial Accounting Tools For Business Decision Making

Authors: Jerry J Weygandt, Paul D Kimmel, Jill E Mitchell

9th Edition

1119754054, 9781119754053

More Books

Students also viewed these Accounting questions

Question

Am I trying to change or control others?

Answered: 1 week ago