Why do monopolies engage in price discrimination when possible? Enumerate and explain the nature of possible impediments to pric
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Answer: The market rate of return is 7.45%
We follow these steps to find the answer.
Here we can interpret the term 'market rate of return' as the required rate of return on the stock. We represent this as
The current market price of stock (P₀), whose dividends are expected to grow for a constant rate is given by:
where
D = Upcoming dividend
k_{e} = required rate of return on the stock
g = constant growth rate of dividends.
Plugging in the values from the question in the formula above we get,
Answer and Explanation:
The computation is shown below:
a. For computing the number of money required at the end of four years first we need to find out the present value i.e to be shown in the attachment
Given that,
Future value = $0
Rate of interest = 7%
NPER = 4 years
PMT = $10,000
The formula is shown below:
= PV(Rate;NPER;PMT;FV;type)
So, after applying this, the present value is $33,872.11
Now the net nest egg is
= $120,000 - $33,000 - $33,872.11
= $53,127.89
Now the future value is
= Present value × (1 + interest rate)^number of years
= $53,127.89 × (1 + 0.07)^4
= $69,639.83
b. Now to find out the number of years required to stay in school we need to use the NPER formula i.e be to shown in the attachment
Given that,
Present value = $69,639.83
Future value = $0
Rate of interest = 7%
PMT = $24,060
The formula is shown below:
= NPER(Rate;PMT;-PV;FV;type)
The present value come in negative
So, after applying this, the answer would be 3.35 years
