Question

In: Finance

1- ) You want to have $3 million when you retire in 40 years. If you...

1- ) You want to have $3 million when you retire in 40 years. If you can earn 12% per year, how much do you need to deposit on a monthly basis if the first payment is made in one month? 2- ) What if the first payment is made today? 3- ) You are considering ABC’s preferred stock that is expected to pay a quarterly dividend of $1.00 forever. If your desired return is 10% per year, how much would you be willing to pay?

Solutions

Expert Solution

1)
Monthly deposit $ 255.00
Working:
a. Future Value of Annuity of 1 = (((1+i)^n)-1)/i Where,
= (((1+0.01)^480)-1)/0.01 i 12%/12 = 0.01
= 11764.773 n 40*12 = 480
b. Monthly Deposit = Future Value of Amount / Future Value of annuity of 1
= $       30,00,000 / 11764.773
= $             255.00
2)
Monthly deposit $ 252.47
Working:
a. Future Value of Annuity of 1 = ((((1+i)^n)-1)/i)*(1+i) Where,
= ((((1+0.01)^480)-1)/0.01)*(1+0.01) i 12%/12 = 0.01
= 11882.42024 n 40*12 = 480
b. Monthly Deposit = Future Value of Amount / Future Value of annuity of 1
= $       30,00,000 / 11882.420
= $             252.47
3)
Value of preferred stock $    40.00
Working:
Quarterly dividend $                  1.00
Quarterly Return 10%/4 = 0.025
Value of preferred stock = $                  1.00 / 0.025
= $                40.00
Amount that should be paid $    40.00

jeff jeffy answered 3 years ago
Next > < Previous

Related Solutions

You want to have $3 million in real dollars in an account when you retire in 30 years
You want to have $3 million in real dollars in an account when you retire in 30 years. The nominal return on your investment is 13 percent and the inflation rate is 3.7 percent. What real amount must you deposit each year to achieve your goal? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Deposit amount = _______ 
You are 20 years old and you want to retire when you have saves$1 million....
You are 20 years old and you want to retire when you have saves $1 million. You have inherited $250,000 and will not add any other savings to that amount. The money will be conservatively invested at 6% per annum. At what age will you be able to retire a millionaire?
You want to have $3 million in real dollars in an account when you retire in...
You want to have $3 million in real dollars in an account when you retire in 30 years. The nominal return on your investment is 11 percent and the inflation rate is 2.5 percent. What real amount must you deposit each year to achieve your goal?
I want to retire in 40 years. When I retire, I want to withdraw $20,000 every...
I want to retire in 40 years. When I retire, I want to withdraw $20,000 every 6 months from my savings for a period of 10 years. However, at the end of years two and three in my retirement, I will need to spend $40,000 and $60,000 respectively to send my grandson to culinary school. Assuming I can earn 4% compounded semi-annually, answer the following question: How much money will I need at year 40 to fund sending my grandson...
Suppose you want to retire after working for 40 years with $2 million saved for retirement....
Suppose you want to retire after working for 40 years with $2 million saved for retirement. Calculate how much you need to save each month if your retirement savings is in an account that grows at 3%, 6%, and 9% interest annually. (three answers, one for each rate.) Show your work.
11.You want to be a millionaire when you retire in 40 years. a. How much do...
11.You want to be a millionaire when you retire in 40 years. a. How much do you have to save each month if you can earn an annual return of 9.7 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. How much do you have to save each month if you wait 10 years before you begin your deposits? (Do not round intermediate calculations and round your answer to 2 decimal places,...
You want to have $2.5 million in real dollars in an account when you retire in...
You want to have $2.5 million in real dollars in an account when you retire in 40 years. The nominal return on your investment is 10.3 percent and the inflation rate is 3.7 percent.   What real amount must you deposit each year to achieve your goal? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
You want to have $6 million in real dollars in an account when you retire in...
You want to have $6 million in real dollars in an account when you retire in 40 years. The nominal return on your investment is 13 percent and the inflation rate is 5.1 percent.    What real amount must you deposit each year to achieve your goal? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
You want to have $2 million in real dollars in an account when you retire in...
You want to have $2 million in real dollars in an account when you retire in 40 years. The nominal return on your investment is 13 percent and the inflation rate is 5 percent. What real amount must you deposit each year to achieve your goal? Multiple Choice • $8,531.47 • $1,972.96 • $8,958.04 • $8,872.73 • $8,104.90
You want to have $1.05 million in real dollars in an account when you retire in...
You want to have $1.05 million in real dollars in an account when you retire in 38 years. The nominal return on your investment is 8 percent and the inflation rate is 1.5 percent. What is the real amount you must deposit each year to achieve your goal? A. $10,667.67 B. $10,878.49 C. $11,194.39 D. $11,302.03 E. $11,744.12
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT