Suppose Diana has $100,000 to invest in an individual retirement account (IRA) at an interest rate of
Question:
Suppose Diana has $100,000 to invest in an individual retirement account (IRA) at an interest rate of 10% per year for her retirement in 15 years. How much money can she accumulate at the end of the time period?
b. Diana wants to send her two-year old daughter to college in 16 years. She has assumed that she would need $100,000 at the time in order to pay for her tuition, room and board, school supplies etc. If she can earn an average of 8% per year, how much money does she need to invest today as a lump sum to achieve that goal?
c. Diana wants to move $50,000 from her checking accounts and invests it in money market securities for 5 years. The money market earns 7% interest compounded annually. How much can this investment grow at the end of the investment period?
d. Diana wants to find the present value of the following uneven cash flows she expects to receive in the next 3 years from her business.
Year Cash Flows
1 $125,000
2 $120,000
3 $115,000
What is the present value of the cash flows assuming the discount rate is 7%?
e. Diana is considering a perpetuity that pays $100 a year. If the interest rate is 8%, what is the value of the perpetuity?
f. Diana also wants to invest in preferred stocks issued by Camden Company. The company is about to pay $3 dividend per share on its stock. After that the dividend is expected to grow at a constant rate of 6% per year indefinitely. If Diana requires a rate of return of 11% on the stock, what is the current price of Camden stock?
Cost Accounting A Managerial Emphasis
ISBN: 978-0136126638
13th Edition
Authors: Charles T. Horngren, Srikant M.Dater, George Foster, Madhav