A stock will give an annuity of $100 for the next 10 years from year 1,...

A stock will give an annuity of $100 for the next 10 years from year 1, and then the annuity will be reduced by 5% each year from year 11 (into infinity). If the required rate of return is 8%, what is the price of the stock?

Expert Solution

R = 8%

Annuity growth rate after 10 years (g) = -5%

Price of the stock = present value of annuity from year 1 to 10 + present value of annuity from year 11 to infinity

Price of the stock = 100*(1-1/(1+8%)^10)/.08 + (100*(1-5%)/(8%-(-5%))*(1/1.08^10)

Price of the stock = $1009.5

Rahul Sunny answered 2 years ago

A 10-year annuity of 20 $8,900 semiannual payments will begin 11 years from now, with the...

A 10-year annuity of 20 $8,900 semiannual payments will begin 11 years from now, with the first payment coming 11.5 years from now. If the discount rate is 8 percent compounded semiannually, what is the value of this annuity ten years and eight years from now? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) What is the value of the annuity today?

A 5-year annuity of 10 $10,000 semiannual payments will begin 9 years from now, with the...

A 5-year annuity of 10 $10,000 semiannual payments will begin 9 years from now, with the first payment coming 9.5 years from now. Requirement 1: If the discount rate is 9 percent compounded semiannually, what is the value of this annuity five years and three years from now? (Enter rounded answers as directed, but do not use rounded numbers in intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).) Value of the annuity Five years $ Three years...

April Stigum will receive a 10-year annuity of $5,000 per year, beginning 5 years from today....

April Stigum will receive a 10-year annuity of $5,000 per year, beginning 5 years from today. In other words, the first payment will be made at the end of year 5. Assuming a required rate of return of 6%, calculate the present value today of her annuity. (Enter a positive value and round to 2 decimals).

Consider a stock that will pay a $2 dividend per year for 10 years (from t=1...

Consider a stock that will pay a $2 dividend per year for 10 years (from t=1 till t=10) after which the dividends are expect to increase at the constant growth rate of 3% per year (so, at=11 the dividend will be 2*1.03=$2.06, at t=12 it will be 2.06*1.03, etc. ) and the required return on the stock is 11% Find the stock price today, the capital gain yield during the first year, the dividend yield during the 15th year

Dipper has a 10 year increasing annuity immediate that pays $100 at the end of the...

Dipper has a 10 year increasing annuity immediate that pays $100 at the end of the first year, $200 at the end of the second year, ... , and $1000 at the end of the 10th year. He exchanges the annuity for a perpetuity of equal value that pays X at the end of each year. If the effective annual interest rate is 3%, find the value of X

You will recieve a 20-year annuity of $2,750 every month for the next 20 years (the...

You will recieve a 20-year annuity of $2,750 every month for the next 20 years (the first payment is one month from today, two hundred and fourty payments in total) as well as a $125,000 lump sum to be received 20 years from today. What is the present value of these cash flows you will receive in the future if the appropriate discount rate is 7.25% APR?

You plan on saving $10,000 a year (as a regular annuity) for the next 30 years. You...

You plan on saving $10,000 a year (as a regular annuity) for the next 30 years. You will then make equal withdrawals for each of the next 25 years (also a regular annuity). If the interest rate is 10% over the first 30 years but only 8% for the remaining 25 years, what will be the amount of each withdrawal? Place answer in the box below and use 2 decimals.

Dr.Arrowhead will receive $150,000 per year for the next 20 years as an ordinary annuity payment...

Dr.Arrowhead will receive $150,000 per year for the next 20 years as an ordinary annuity payment for a high-tech slingshot weapon he invented. If a 6 percent rate is applied, should he be willing to sell out his future rights now for $2,000,000?

A: You deposit $100 for the next 15 years earning 10% per year. What would your balance be at the end of the 15 Years?

Please show work and formulas: A: You deposit $100 for the next 15 years earning 10% per year. What would your balance be at the end of the 15 Years? B: You borrow $100,000 for 18 years at an annual rate of 7%. What would be your fixed QUARTERLY loan payment? C: For the loan in #5 above, what percent of your first payment would apply to the principal?

1. You will receive $100 per year for 10 years. The discount rate is 10%. What...

1. You will receive $100 per year for 10 years. The discount rate is 10%. What is the present value of this stream? 2. Using the previous information, assume now the 100 will increase at a 5% per year from year 1. What is the new present value? 3. Now assume compute the present value for the same information using a perpetuity without and with growth. Compare the 4 present values. What would you rank those? (Please explain step by...

Question