Chapter 4: Question (page 281)
You invest $3,000 for three years at 12 percent.
a. What is the value of your investment after one year?
Answer
The value of investment after one year is $3,360.
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North Pole Cruise Lines issued preferred stock many years ago. It carries a fixed dividend of $6 per share. With the passage of time, yields have soared from the original 6 percent to 14 percent (yield is the same as required rate of return).
a. What was the original issue price?
b. What is the current value of this preferred stock?
c. If the yield on the Standard & Poor’s Preferred Stock Index declines, how will the price of the preferred stock be affected?
What are the three adjustments that have to be made in going from annual to semi-annual bond analysis?
Why is the remaining time to maturity an important factor in evaluating the impact of a change in yield to maturity on bond prices?
Rita Gonzales won the \(41 million lottery. She is to receive \)1.5 million a year for the next 19 years plus an additional lump sum payment of $12.5 million after 19 years. The discount rate is 14 percent. What is the current value of her winnings?
Question: Franklin Templeton has just invested \(9,260 for his son (age one). This money will be used for his son’s education 18 years from now. He calculates that he will need \)71,231 by the time the boy goes to school. What rate of return will Mr. Templeton need in order to achieve this goal?
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