Difference between the present values of each investment

Assignment Help Financial Management

Reference no: EM13846165

Consider two investments that you can make. You can either buy a share of stock in a company that will pay a dividend of $ 10 every year into the foreseeable future, or a buy a special type of bond that will start paying the same $ 10 in one year, and thereafter that payment will increase at the rate of 2 %, for a total of 5 payments. If the interest rate is 5 % (in both cases), which investment is better?

To answer this question, calculate the difference between the present values of each investment. That is, obtain the value that results for the present value of buying the stock minus the present value of buying the bond (that way, if the difference is positive then the stock is better, and vice versa). Enter your answer rounded to one decimal.

Reference no: EM13846165

Questions Cloud

What would be your annualized rate of return : Suppose you invest $ 4,030 today to start a business. In 6 years you hope to sell this company for $ 14,849. What would be your annualized rate of return? Express your answer as a percentage, rounded to the first decimal, and without the ‘%’ sign. So..

Create an agenda for new employee orientation : Create an agenda for New Employee Orientation at Southwood School. The orientation should last one full day. The new employee will meet with representatives from: HR, Finance, Information Technology and the school administrator

Bond with call provision would generally be sold to yield : A bond with a call provision would generally be sold to yield

Significance of a new entrants : Explain the significance of a new entrants into the industry. What is the impact of new competitors have on my market share? Cumulative Profitability? Cost to the consumer?

Difference between the present values of each investment : Consider two investments that you can make. You can either buy a share of stock in a company that will pay a dividend of $ 10 every year into the foreseeable future, or a buy a special type of bond that will start paying the same $ 10 in one year, an..

Money will be in the account at the end of that time period : For the next 8 years, you decide to place $4454 in equal year end deposits into a savings account earning 9.85 percent per year. How much money will be in the account at the end of that time period?

Objectives for segmentation and targetting research : 1. Explain the research purpose and objectives for the segmentation and targetting research described in the case. 2. Analyze and interpret the data. Make your recommendations to Joyoung CEOs based on your findings.

What was the average annual growth rate of salary : 3 years ago Marias annual salary was $36785. Today she earns $86218. What was the average annual growth rate of Marias salary?

Monthly charge HGC should pay for the lockbox system : Hardin-Gehr Corporation (HGC) began operations 5 years ago as a small firm serving customers in the Detroit area. However, its reputation and market area grew quickly. Today HGC has customers all over the United States. What is the maximum monthly ch..

User Account

All Pages