70.2K

Verified Solution

Link Copied!

Next Question An investor bought 100 shares of stock at a cost Je held the stock for 15 years and then sold it for a total of $4,000. For the first three years, he received no dividends. For each of the next seven years, he received total dividends of $50 per year. For the remaining period, he received total dividends of $100 per year. What rate of return did he make on the investment? Set the net present worth of the project equal to zero and solve the obtained equation for the unknown interest rate. The present worth is given by M 1 PW(i) = E An(PIF, i, n), (PIF, I, N) = (1 +, + n=0 where i = interest rate per period, An = net cash flow at end of period n, M= service life of the project. You can also use the following relationship to find the present worth (P) and the future worth (F) of the series of end-of-period payments A: [(1+i)N-1 P=A = A(PIA, i, N), = A(FIA, I, N). i(1 + i)^ Next Question An investor bought 100 shares of stock at a cost Je held the stock for 15 years and then sold it for a total of $4,000. For the first three years, he received no dividends. For each of the next seven years, he received total dividends of $50 per year. For the remaining period, he received total dividends of $100 per year. What rate of return did he make on the investment? Set the net present worth of the project equal to zero and solve the obtained equation for the unknown interest rate. The present worth is given by M 1 PW(i) = E An(PIF, i, n), (PIF, I, N) = (1 +, + n=0 where i = interest rate per period, An = net cash flow at end of period n, M= service life of the project. You can also use the following relationship to find the present worth (P) and the future worth (F) of the series of end-of-period payments A: [(1+i)N-1 P=A = A(PIA, i, N), = A(FIA, I, N). i(1 + i)^

Answer & Explanation Solved by verified expert

See Answer