Kathy Myers frequently purchases stocks and bonds, but she is uncertain how to determine the rate of return that she is earning. For example, five years ago she paid $19,000 for 890 shares of Malti Company's common stock. She received a $801 cash dividend on the stock at the end of each year for five years. At the end of five years, she sold the stock for $22,700. Kathy would like to earn a return of at least 11% on all of her investments. She is not sure whether the Malti Company stock provided a 11% return and would like some help with the necessary computations. (Ignore income taxes.)
To determine the appropriate discount factor(s) using tables, click here to view Exhibit 14B-1 and Exhibit 14B-2. Alternatively, if you calculate the discount factor(s) using a formula, round to three (3) decimal places before using the factor in the problem.
Required:
(a)
Determine the net present value. (Round your answer to the nearest dollar amount. Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.)
Net present value $
(b) Did Malti Company earn a 11% return on the stock?
http://prep.eztestonline.com/servlet/TestPilot4/lazerwords/12418616123659200.tp4/exhibit14b-2.jpg
http://prep.eztestonline.com/servlet/TestPilot4/lazerwords/12418616123659200.tp4/exhibit14b-1.jpg
To determine the appropriate discount factor(s) using tables, click here to view Exhibit 14B-1 and Exhibit 14B-2. Alternatively, if you calculate the discount factor(s) using a formula, round to three (3) decimal places before using the factor in the problem.
Required:
(a)
Determine the net present value. (Round your answer to the nearest dollar amount. Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.)
Net present value $
(b) Did Malti Company earn a 11% return on the stock?
http://prep.eztestonline.com/servlet/TestPilot4/lazerwords/12418616123659200.tp4/exhibit14b-2.jpg
http://prep.eztestonline.com/servlet/TestPilot4/lazerwords/12418616123659200.tp4/exhibit14b-1.jpg