Question
Mo owns investment A and 1 share of stock B. The total value of his holdings is $400. Stock B has an annual expected return
Mo owns investment A and 1 share of stock B. The total value of his holdings is $400. Stock B has an annual expected return of 14.83 percent. The stocks next annual dividend is expected to be $16.55 in 1 year and all subsequent dividends are expected to grow annually by 4.16 percent forever. Investment A has an expected return of 9.03 percent and is expected to pay X per year for a finite number of years such that its first annual payment is expected later today and its last annual payment is expected in 5 years from today. What is X, the annual cash flow made by investment A?
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