Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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You own two investments, A and B, that have a combined total value of $34,300.00. Investment A is expected to pay $860.00 per year forever; its next paymentis expected in 1 year; and its
expected return is 6.09 percent per year. Investment B is also expected to make annual payments forever and make its next payment in 1 year. Investment B's next payment is expected to be
$961.00 and all subsequent payments are expected to grow by 0.58 percent per year forever. What is the annual expected return for investment B?
O 5.34% (plus or minus 3 bps)
O 3.38% (plus or minus 3 bps)
O 4.76% (plus or minus 3 bps)
O 2.80% (plus or minus 3 bps)
O none of the answers are within 3 bps of the correct answer
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Transcribed Image Text:You own two investments, A and B, that have a combined total value of $34,300.00. Investment A is expected to pay $860.00 per year forever; its next paymentis expected in 1 year; and its expected return is 6.09 percent per year. Investment B is also expected to make annual payments forever and make its next payment in 1 year. Investment B's next payment is expected to be $961.00 and all subsequent payments are expected to grow by 0.58 percent per year forever. What is the annual expected return for investment B? O 5.34% (plus or minus 3 bps) O 3.38% (plus or minus 3 bps) O 4.76% (plus or minus 3 bps) O 2.80% (plus or minus 3 bps) O none of the answers are within 3 bps of the correct answer
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