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Mba 503 Problem Set 2

Chapter 9, Problem 17
Jack Hammer invests in a stock that will pay dividends of $2.00 at the end of the first year; $2.20 at the end of the second year; and $2.40 at the end of the third year. Also, he believes that at the end of the third year he will be able to sell the stock for $33. What is the present value of all future benefits if a discount rate of 11 percent is applied? (Round all values to two places to the right of the decimal point.)

Present value of a single amount
PV = FV x PVIF or Appendix B
Year 1: FV = 2.00; i = 0.11; n = 1; PV = 2.00 [0.901] = 1.80
Year 2: FV = 2.20; i = 0.11; n = 2; PV = 2.20 [0.813] = 1.79
Year 3: FV = 2.40; i = 0.11; n = 3; PV = 2.40 [0.731] = 1.75
When FV = 33, i = 0.11; n =3; PV = 33[0.731] = 24.12

Total PV = 1.80+1.79+1.75+24.12 = 29.46

Chapter 9, Problem 22
Your rich godfather has offered you a choice of one of the three following alternatives: $10,000 now; $2,000 a year for eight years; or $24,000 at the end of eight years.......


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Approximate Word Count: 962
Approximate Pages: 4 (250 words per double-spaced page)

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