Finding the value of a stream of cash flows (or the price of a security). a) b) c) CF, = 25 x (1+.07)?-? starts at t=11 and lasts forever (continues indefinitely). The interest rate is 12%. Havelock Corporation is expected to pay the following dividends over the next four years: $9, S6, $4, and $2. Afterward, the company pledges to maintain a constant 6% growth rate in dividends forever. If the required return on the stock is 12%, what is the current share price? Find the price of a British Consol that makes quarterly coupon payments indefinitely (Consols are certain government debt issues in the form of perpetual bonds). It pays $1 in the first quarter, $2 in the second quarter, S3 in the third quarter, and $4 in the fourth quarter. The interest rate is 12%, compounded quarterly. You need a 20-year, fixed-rate loan to buy a building for your business for $550,000. Your bank will lend you the money at a 5% APR (semi-annual) for this 240-month loan. However, you can afford monthly payments of only $2,100, so you offer to pay off any remaining loan balance (unpaid principal and interest) at the end of the loan (20 years from now) in the form of a single payment. How large will this payment have to be for you to keep your monthly payments at $2,100? d) Finding the value of a stream of cash flows (or the price of a security). a) b) c) CF, = 25 x (1+.07)?-? starts at t=11 and lasts forever (continues indefinitely). The interest rate is 12%. Havelock Corporation is expected to pay the following dividends over the next four years: $9, S6, $4, and $2. Afterward, the company pledges to maintain a constant 6% growth rate in dividends forever. If the required return on the stock is 12%, what is the current share price? Find the price of a British Consol that makes quarterly coupon payments indefinitely (Consols are certain government debt issues in the form of perpetual bonds). It pays $1 in the first quarter, $2 in the second quarter, S3 in the third quarter, and $4 in the fourth quarter. The interest rate is 12%, compounded quarterly. You need a 20-year, fixed-rate loan to buy a building for your business for $550,000. Your bank will lend you the money at a 5% APR (semi-annual) for this 240-month loan. However, you can afford monthly payments of only $2,100, so you offer to pay off any remaining loan balance (unpaid principal and interest) at the end of the loan (20 years from now) in the form of a single payment. How large will this payment have to be for you to keep your monthly payments at $2,100? d)
