1) The price of Geeslin Corporation stock is expected to be $68 in 5 years. Dividends are anticipated to increase at an annual rate of 20 percent from the most recent dividend of $2.00. If your required rate of return is 16 percent, how much are you willing to pay for Geeslin stock?
A) $ 41.56
B) $ 42.35
C) $ 41.09
D) $ 43.46
2) You are considering the purchase of a common stock that just paid a dividend of $2.00. You expect this stock to have a growth rate of 30 percent for the next 3 years, resulting in dividends of D1=$2.60, D2=$3.38, and D3=$4.39. The long-run normal growth rate after year 3 is expected to be 10 percent (that is, a constant growth rate after year 3 of 10% per year forever). If you require a 15 percent rate of return, how much should you be willing to pay for this stock
A) $79.15
B) $82.46
C) $7.50
D) $71.20
3) Frank Zanca is considering three different investments that his broker has offered to him. The different cash flows are as follows:
End of Year A B C
1 500 600
2 500 600
3 500
4 500 500 600
5 500
6 500
7 500
8 500 600
Because Frank only has enough savings for one investment, his broker has proposed the third alternative to be, according to his expertise, "the best in town." However, Frank questions his broker and wants to calculate the present value of each investment. Assuming a 15% discount rate, what is Frank's best alternative?
A) A, because it's present value is better than B
B) C, because it's present value is better than A or B
C) B, because it's present value is better than A, and it has the highest total return.
D) A, because it's returns are in the earliest years, and it's present value is highest.
4) You estimate you'll need $40,000 per year for 30 years starting on your 65th birthday to live on during your retirement. Today is your 50th birthday and you want to save an equal amount each year, beginning today, so you can retire at age 65. If you make equal annual deposits into an account paying 6% interest per year, the first deposit today and the last deposit on your 64th birthday, how much must each deposit be (rounded to the nearest $10)?
A) $80,000
B) $23,650
C) $27,770
D) $33,450