1. You lend $900 to a friend who promises to pay you $250 at the end...

1. You lend $900 to a friend who promises to pay you $250 at the end of each of the next 4 years.

a. Draw a timeline from your perspective.

b. If you can reliably earn 4% per year, what is the net present value (NPV) of the loan?

2. You own a perpetual preferred stock issued by Goldman Sachs. If the GS preferred pays a dividend of $.80 per year and today’s market rate for this preferred is 3.0% per year, what is its current market price?

3. If the dividend of the preferred stock described in Q #2 is scheduled to increase 1.0% per year, what is its current market price?

4. You won the New York Get Rich Quick Lottery, and you must decide if you should take a LUMP sum of $25 million now or an ANNUITY of $2,000,000 per year for 20 years. a. If you can reliably earn 3% per year, which option is better? b. If you can reliably earn 6% per year, which option is better?

5. An APR reflects __________ interest only; but an EAR includes _________ interest.

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PLEASE DON’T FORGET TO GIVE A THUMBS UP ??!!!

jeff jeffy answered 1 month ago

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