Retained earnings dont pay interest or dividends, but investors still expect to earn a return on the earnings that the firm reinvests on their behalf. Use the following information to estimate an investors required rate of return.

Risk free rate: 3%

Market rate: 11%

Growth: 6%

Borrowing rate: 7.5%

Beta: 1.050

Todays Price: $20.00

Anticipated Dividend: $1.50

Tax rate: 25%

a. 11.4%

b. 10.65%

c. 11.55%

d. 14.55%

e. 8.55%

How much would you be willing to pay for a $1,000 par value, 12 year bond with an 9% coupon thats paid semi-annually if your requested rate of return is 8%?

$1,076.23

$1,000

$928.39

$1,075.99

$1,073.99

Youre invested your savings at 8% and been able accumulate $500,000.00. If you withdraw $50,000 at the end of every year, how long until the balance has been reduced to zero?

20.91 years

18.49 years

10 years

13.91 years

7.63 years

Youve just won the Im feeling lucky sweepstakes!! They offer two payout choices: $500,000 now or $40,000 at the end of every year for 25 years. What interest rate have the sponsors assumed in structuring these alternatives?

6.24%

6.51%

8%

5.87%

Which of the compounding arrangements will provide the lowest return? A bank CD that pays:

7.5% compounded semi annually

7% compounded quarterly

7.75% compounded annually

7% compounded daily on 365-day basis

7.2% compounded monthly