P3-38. You are given the series of cash flows shown in the following table.
Year A B C
1 $500 $1,500 $2,500
2 560 1,550 2,600
3 640 1,610 2,650
4 720 1,680 2,650
5 800 1,760 2,800
6 1,850 2,850
7 1,950 2,900
a. Calculate the compound annual growth rate associated with each cash flow stream.
b. If year-1 values represent initial deposits in a savings account paying annual interest, what is the annual rate of interest earned on each account?
c. Compare and discuss the growth rate and interest rate found in parts a and b, respectively.© BrainMass Inc. brainmass.com October 24, 2018, 10:45 pm ad1c9bdddf
This posting provides a detailed solution to the student's question.
Basics of Financial Management
Camel Industries is expected to pay an annual dividend of RM1.30 a share next month.
The market price of the stock is RM24.80 and the growth rate is 3 percent. What is the
firm's cost of equity?
An investment promises the following cash flow stream: RM1,000 at Time 0; RM2,000 at the
end of Year 1 (or at T=1); RM3,000 at the end of Year 2; and RM5,000 at the end of Year 3.
At a discount rate of 5%, what is the present value of the cash flow stream?
Recently you invested in a 20-year asset that pays you RM100 at t = 1, RM500 at t = 2,
RM750 at t = 3, and some fixed cash flow, X, at the end of each of the remaining 17
years. You purchased the asset for RM5,544.87. Alternative investments of equal risk
have a required return of 9%. What is the annual cash flow received at the end of each
of the final 17 years, that is, what is X?
You deposit RM1,000 in a bank account that pays 6% nominal annual interest, compounded
monthly. How much will you have in your account after 3 years?