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NPV, Bond Price & Stock Price

3. NPV:
You have an opportunity to invest in a business that will pay $200,000 in one year, $400,000 in two years, $600,000 in three years and $800,000 in four years. You can earn 12% per year compounded annually on a mutual fund that has similar risk. If it costs $1.2 million to start this business, what is the NPV & should you invest?

4. Bond Price:
What is the price of a 25-year, pure discount bond that pays $50 at maturity if the current yield-to-maturity is 8 percent?

5. Stock Price:
Suppose a firm just paid a dividend of $10 per share. Future dividends are expected to increase at a 5% annual rate. The required return is 25% per year. The value of the firm is estimated as:

Solution Summary

Word document attached solves 3 problems on these topics, pointing out which formulas to use for which.