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aleksandr82 [10.1K]
3 years ago
14

Steve Smith will receive $82,870 on 5 years from now, from a trust fund established by his father. Assuming the appropriate inte

rest rate for discounting is 10% (compounded semiannually), what is the present value of this amount today? (Round factor values to 5 decimal places, e.g. 1.25124. Round answers to the nearest whole dollar, e.g. 5,275.)
Business
1 answer:
sweet-ann [11.9K]3 years ago
7 0

Answer:

$50,875

Explanation:

The computation of the present value is shown below:

Given that

NPER = 5 × 2 = 10

RATE = 10% ÷ 2 = 5%

PMt = $0

FV = $82,870

The formula is shown below:

= -PV(RATE;NPER;PMT;FV;TYPE)

After applying the above formula, the present value is $50,875

Hence, the present value is $50,875

We simply applied the above formula so that the correct value could come

And, the same is to be considered

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The question is incomplete. Here is the complete question:

The following annual returns for Stock E are projected over the next year for three possible states of the economy. What is the stock’s expected return and standard deviation of returns? E(R) = 8.5% ; σ = 22.70%; mean = $7.50; standard deviation = $2.50

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Normal           60%     20%

Recession       30%   - 25%

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The expected return of the stock E(R) is 8.5%.

The standard deviation of the returns is 22.7%

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<u>Expected return</u>

The expected return of the stock can be calculated by multiplying the stock's expected return E(R) in each state of economy by the probability of that state.

The expected return E(R) = (0.4 * 0.1)  +  (0.2 * 0.6)  +  (-0.25 * 0.3)

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The standard deviation is a measure of total risk. It measures the volatility of the stock's expected return. The standard deviation (SD) of a stock's return can be calculated by using the following formula:

SD = √(rA - E(R))² * (pA) + (rB - E(R))² * (pB) + ... + (rN - E(R))² * (pN)

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