Darlene wishes to purchase 200 shares of The-Smart-One Inc. in 4 years from now. The-Smart-One paid a dividend of $2.25 per share last year (t = 0). It is expected that the dividend will grow at a rate of 2% for this and the next year (t = 1 and t = 2 respectively), after which it will settle into a 1% growth rate for an indefinite time in future. Darlene requires a return of at least 6% from her investment. Question 1: How much will be the total cost of Darlene's purchase of 200 shares 4 years from now? Question 2: How much does Darlene need to deposit in her bank today so that she has $9,680 in her account by the time she is ready for her stock purchase. Assume that the bank pays 1.75% p.a. on deposits. Question 3: If Darlene wanted to make annual deposits at the end of each year to accumulate $9,680, how much would she need to deposit each year? Question 4: Which of the two type of deposits will be better?

Darlene wishes to purchase 200 shares of The-Smart-One Inc. in 4 years from now. The-Smart-One paid a dividend of $2.25 per share last year (t = 0). It is expected that the dividend will grow at a rate of 2% for this and the next year (t = 1 and t = 2 respectively), after which it will settle into a 1% growth rate for an indefinite time in future. Darlene requires a return of at least 6% from her investment. Question 1: How much will be the total cost of Darlene's purchase of 200 shares 4 years from now? Question 2: How much does Darlene need to deposit in her bank today so that she has $9,680 in her account by the time she is ready for her stock purchase. Assume that the bank pays 1.75% p.a. on deposits. Question 3: If Darlene wanted to make annual deposits at the end of each year to accumulate $9,680, how much would she need to deposit each year? Question 4: Which of the two type of deposits will be better?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter2: The Domestic And International Financial Marketplace

Section: Chapter Questions

Problem 2P

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