Present Value concepts for investment options.
1. At a growth (interest) rate of 8 percent annually, how long will it take for a sum to double? To triple? Select the year that is closest to the correct answer.
2. Determine the amount of money in a savings account at the end of five years given an initial deposit of $3,000 and an 8 percent annual interest rate when interest is compounded (a) annually, (b) semiannually, and (c) quarterly.
3. You need $23,956 at the end of nine years, and your only investment outlet is a 7 percent long-term certificate of deposit (compounded annually). With the certificate of deposit, you make an initial investment at the beginning of the first year.
a. What single payment could be made at the beginning of the first year to achieve this objective?
b. What amount could you pay at the end of each year annually for nine years to achieve this same objective?
4. Laser Optics will pay a common stock dividend of $1.60 at the end of the year (D1). The required rate of return on common stock (Ke) is 13 percent. The firm has a constant growth rate (g) of 7 percent. Compute the current price of the stock (P0).