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Date Posted: 13:15:29 08/04/00 Fri
Author: Karen Gilmore
Subject: Re: Practive Final Fall 99
In reply to: Tam 's message, "Practive Final Fall 99" on 10:05:19 08/04/00 Fri

I'm also stuck on these two. #6, I have the Eff rate to be 12.55%, and using CF0=0 and the next 6=500, I got $2437.56, but the answer is $2451.73.

On 14 I did almost the same as you, but the cash flows were a bit different . I thought CF0=0, CF1=1, CF2=1.2, CF3=1.44 and CF4=32.55. I'm getting 26.15.

Any suggestions anyone??



> Dr. Charles or anyone, I need help with Q. 6 & 14
>
> On Q. 6, I can't arrive at the answer because I think
> I am using the wrong discount rate to find the PV of
> the investment. I am unsure how to handle when the
> compounding interest is different the frequency of the
> payment. Can anyone post his/her solution.
>
> On Q. 14, I am not coming up with the correct answer.
> Here's are my assumptions:
> K = 6 + (5)1.4 = 13%
> D = $1 D1 = $1.2 D2 = 1.44 D3 = 1.728 D4 = 1.8490
> PV of dividend at T4 to infinity = 1.8490/(13%-7%) =
> 30.8160
> Price of stock = CF0 = 0, CF1 = 1.2, CF2 = 1.44 CF3 =
> 1.728+30.8160, I = 13% NPV = 24.7443 but the correct
> is 20.16.
> What am I doing wrong?

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