Make the investor indifferent between receiving the dividend

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Reference no: EM131968243

1. Eddie wants to finish paying off his college loan in 72 payments (monthly). His current loan balance is $59,400 and is growing at a constant rate of 6.25% APR (compounded annually). What is the amount Eddie will have to pay each month in order to reach a $0 balance on his 72nd payment?

2. An investor has a 38% ordinary income tax rate and a 20% long-term capital gains tax rate. The investor holds stock in a firm that would pay its usual $1 per share dividend or reinvest the cash in the firm. The stock price is currently $30 per share. If the firm does not pay the dividend, the share price will rise. If it pays the dividend, the share price will stay the same. By how much must the share price rise if the dividend is not paid in order to make the investor indifferent between receiving the dividend or not?

Reference no: EM131968243

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