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Bingel [31]
3 years ago
6

What is the PV of an ordinary annuity with 10 payments of $2,700 if the appropriate interest rate is 5.5%? a. $16,576 b. $19,334

c. $18,367 d. $17,449 e. $20,352
Business
1 answer:
jeyben [28]3 years ago
4 0

Answer:

The correct answer is E.

Explanation:

Giving the following information:

Ordinary annuity with 10 payments of $2,700. The interest rate is 5.5%.

First, we need to calculate the final value using the following formula:

FV= {A*[(1+i)^n-1]}/i

A= annual pay

FV= {2,700*[(1.055^10)-1]}/0.055= $34,763.45

Now, we can calculate the present value:

PV= FV/(1+i)^n

PV= 34,763.45/(1.055^10)= 20,352

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Answer:

$163,100

Explanation:

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<u>PV of  $82,400;</u>

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From the cumulative present value of 303,764.34, find the balance after deducting the above PVs;

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Next, calculate year 3's cashflow;

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Answer:

C. lower, higher

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Also Higher required returns mean that the investor requires higher returns to buy the stock, because he may view the stock as risky and requires higher returns for the risk he is taking or he may have a higher opportunity cost (for eg interest rates may be high) with other investments. Mathematically the DDM model D*(1+G)/R-G shows us that a higher R would mean lower stock price.

Explanation:

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Answer:

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