Answer:
$4,238.05
Explanation:
The computation of the present value is shown below:
Years Cash flows Discount factor @7% Present value
1 $850.00 0.9345794393 $794.39
2 $1,190.00 0.8734387283 $1,039.39
3 $1,450.00 0.8162978769 $1,183.63
4 $1,600.00 0.762895212 $1,220.63
Total present value $4,238.05
Answer:
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Answer:
C. Trading Securities
Explanation:
Trading securities refer to those securities which are purchased not with the intention of holding them till maturity, but to realize the gains arising as a consequence of short term price movements.
Bonds refer to debt instruments issued by the borrower for raising long term finance whereby the borrower promised to pay fixed coupon rate of interest on timely basis and principal repayment upon redemption.
In the given case, bonds purchased with the intention of selling in the near future with an objective to benefit from short term price movements represent trading securities. The benefit would be in the form of short term capital appreciation.
Answer:
P0 = $77.397794 rounded off to $77.40
Explanation:
The two stage growth model of DDM will be used to calculate the price of the stock today. The DDM values a stock based on the present value of the expected future dividends from the stock. The formula for price today under this model is,
P0 = D0 * (1+g1) / (1+r) + D0 * (1+g1)^2 / (1+r)^2 + ... + D0 * (1+g1)^n / (1+r)^n + [(D0 * (1+g1)^n * (1+g2) / (r - g2)) / (1+r)^n]
Where,
- g1 is the initial growth rate
- g2 is the constant growth rate
- D0 is the dividend paid today or most recently
- r is the required rate of return
P0 = 1.89 * (1+0.23) / (1+0.15) + 1.89 * (1+0.23)^2 / (1+0.15)^2 +
1.89 * (1+0.23)^3 / (1+0.15)^3 +
1.89 * (1+0.23)^4 / (1+0.15)^4 +
1.89 * (1+0.23)^5 / (1+0.15)^5 + 1.89 * (1+0.23)^6 / (1+0.15)^6 +
1.89 * (1+0.23)^7 / (1+0.15)^7 + 1.89 * (1+0.23)^8 / (1+0.15)^8 +
1.89 * (1+0.23)^9 / (1+0.15)^9 + 1.89 * (1+0.23)^10 / (1+0.15)^10 +
[(1.89 * (1+0.23)^10 * (1+0.07) / (0.15- 0.07)) / (1+0.15)^10]
P0 = $77.397794 rounded off to $77.40