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# Miscellaneous Finance Questions

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1)A state's lottery winner is promised \$200,000 a year for twenty years (starting at the end of the first year). How much must the state invest now to guarantee the prize if the state can earn annually 7 percent on its funds? How much must the state invest if the annual payments were made at the beginning of the year?

2)A homeowner has a ten year home-improvement loan for \$36,875. What are the annual payments required by the loan if the annual rate of interest is 10 percent?

3.Brian has a capital gain of \$3,700 and a capital loss of \$5,100 for a net long-term capital loss of \$1,400. This reduces his taxable income from other sources and reduces taxes by (.35)(\$1,400) = \$490.

4 Barbara has a short-term capital loss that is used to offset the \$2,000 long-term capital gain. The remaining \$4,000 is used to offset \$3,000 of current income from other sources with \$1,000 being carried forward to the next year. The tax savings in the current year is (0.35)(\$3,000) = \$1,050.

5.The risk free rate of return is 8 percent; the expected rate of return on the market is 12 percent. Stock X has a beta coefficient of 1.3, an earnings and dividend growth rate of 7 percent, and a current dividend of \$2.40. If the stock is selling for \$35, what should you do?
6.Presently, Stock A pays a dividend of \$2.00 a share, and you expect the dividend to grow rapidly for the next four years at 20 percent. Thus the dividend payments will be:

Year Dividend
1 \$1.20
2 1.44
3 1.73
4 2.07

After this initial period of super growth, the rate of increase in the dividend should decline to 8 percent. If you want to earn 12 percent on investments in common stock, what is the maximum you should pay for this stock?
7.You bought a stock for \$20 and sold it for \$59.72 after six years. What was the annual rate of return?

8.You bought a stock for \$28.29 that paid the following dividends:

Year 1 2 3
Dividend \$1.00 \$1.50 \$1.80

After the third year, you sold the stock for \$35. What was the annual rate of return?