# 1. Suppose you invest $80,000 in the Raiford Commercial Bank paying 7.0% interest for exactly n =...

## Question:

**1. **Suppose you invest $80,000 in the Raiford Commercial Bank paying 7.0% interest for exactly n = 9 years. You then leave the money in the bank but starting at n + 1, you make 4 annual withdrawals of an equal amount, emptying the account as the bank continuous to pay the same annual interest rate as during the accumulation period. ** To figure out the cash flows, create a time diagram.**

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**2**. If you are investing $15,000 for n = 15 years at 9.3% annual interest with compounding, how much more money would you have at the end of those n years compared to being paid back over the same time period and at the at the same annual interest rate but calculated as only simple interest without compounding?

**3. **The Marco Corporation is paying dividends of $1.16 at t = 1 ( this is at t = 1, not t = 0) which will then grow at rate of 10% between t = 1 and t = 2 only and thereafter grow at the rate of 4% into the foreseeable future. What should be the price, to the nearest cent, of the Marco Corp. stock if you were to use 8% to discount the risky cash flows?

**4. **Flagler Inc. is paying dividends of $2.10 at t = 0 (not t = 1) which will then grow at a constant rate of 5.1% from that point into the future. What should be the price of Flagler stock, if the cash flows for stocks of equivalent risk are usually discounted using an 7.9% discount rate?

**Related Book For**

## Income Tax Fundamentals 2013

ISBN: 9781285586618

31st Edition

Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill