Financial Calculations
Student Name
Institutional Affiliation
Course Code
Instructor
Due Date
, 1. Steve purchases preferred stock in Berklee Corporation, with each share paying a $2.50
dividend. This dividend will remain constant. If the public’s required rate of return for Berklee
stock is 8%, at what price should this company’s stock sell?
To find the price at which the preferred stock should sell, we can use the formula for the
price of a perpetuity:
P=D/r
Where: P = Price of the preferred stock, D = Dividend per share, and r = Required rate of return
(in decimal form)
Given:
D=$2.50
r=0.08
Substitute the values into the formula:
P=$2.50/0.08
P=$31.25
2. Donna enters into an investment contract that will guarantee her 4% per year if she deposits
$3,500 each year for the next 10 years. She must make the first deposit one year from today, the
day she signs the agreement. How much will she have when she makes her last payment 10 years
from now?
FV = P * ((1 + r) ^n - 1) / r Where: FV is the future value, P is the annual deposit
($3,500), r is the interest rate per period (4% or 0.04), n is the number of periods (10 years).
FV=$3,500×12.006
FV=$42,021.49
3. Assume the same facts as in problem 2 above, except that Donna negotiates the chance to
make her first payment now and continue to pay at the beginning of each year for the 10-year
period. How much will she have accumulated?
Student Name
Institutional Affiliation
Course Code
Instructor
Due Date
, 1. Steve purchases preferred stock in Berklee Corporation, with each share paying a $2.50
dividend. This dividend will remain constant. If the public’s required rate of return for Berklee
stock is 8%, at what price should this company’s stock sell?
To find the price at which the preferred stock should sell, we can use the formula for the
price of a perpetuity:
P=D/r
Where: P = Price of the preferred stock, D = Dividend per share, and r = Required rate of return
(in decimal form)
Given:
D=$2.50
r=0.08
Substitute the values into the formula:
P=$2.50/0.08
P=$31.25
2. Donna enters into an investment contract that will guarantee her 4% per year if she deposits
$3,500 each year for the next 10 years. She must make the first deposit one year from today, the
day she signs the agreement. How much will she have when she makes her last payment 10 years
from now?
FV = P * ((1 + r) ^n - 1) / r Where: FV is the future value, P is the annual deposit
($3,500), r is the interest rate per period (4% or 0.04), n is the number of periods (10 years).
FV=$3,500×12.006
FV=$42,021.49
3. Assume the same facts as in problem 2 above, except that Donna negotiates the chance to
make her first payment now and continue to pay at the beginning of each year for the 10-year
period. How much will she have accumulated?
