Question
Tom owns investment Echo and 1 share of stock Foxtrot. The total value of his holdings is $500. Stock Foxtrot has an annual expected return
Tom owns investment Echo and 1 share of stock Foxtrot. The total value of his holdings is $500. Stock Foxtrot has an annual expected return of 18.4 percent. The stocks next annual dividend is expected to be $5.16 in 1 year and all subsequent dividends are expected to grow annually by 7 percent forever. Investment Echo has an expected return of 10% 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 8 years from today. What is X, the annual cash flow made by investment Echo?
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