HELP! 3 Finance Homework Problems - Annual rate of increase?
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1.) On September 1, 1963 tuition was $144 per semester. By September 1, 2001, it was $1734 for a semester. What was the annual rate of increase? (I think I did it correctly =6.77%?)
2.) 5 years ago, a company paid a $0.45 per share dividend. Now the dividend is $0.66. What is the annual compound rate of dividend growth? (=7.96?)
3.) Shelly won the $294.8 million lottery on August 25, 2001, sharing the payout with 3 other winners. She chose to receive $41.4 million (before-tax) immediately, rather than receiving $2.9 million each year for the next 25 years.
a. What discount rate was applied by lottery officials to arrive at the $41.4 million figure?
b. If she invests the $41.4 million in a diversified portfolio earning 10% per year, which payout alternative would maximize her wealth?
(I don't even know where to begin)
HELP! 3 Finance Homework Problems - Annual rate of increase?1. n = 38, PV = (144), FV = 1734, i = 6.77%
2. n = 5, pv = (0.45), FV = 0.66, i = 7.96%
3. The numbers in this problem sound screwy. The annual payout in a lottery should equal the prize value (294.8M) divided by the number of years (25). It this problem it does not, nor does it equal 1/3 of that number. Ignore the 294.8 and go on:
PVannuity = (41.4), PMT = 2.9, n = 25, i = 4.87%
This assumes an ordinary annuity (payments at end of years). If it is an annuity due (pay at beginning of years), the rate is 5.40%
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