Future Value of a single sum : FV = PV(1+I/Y)N

Calculate the Future Value of Rs. 500 investment at the end of 20 years if it earns an anually compounded
rate of return 6%
Soln. Compute FV using the calculator and following values :
N = 20
I/Y = 6
PV = 500
CPT ->
FV = -1603.57, -ve sign indicates money has to be invested.

Present Value of a single sum : PV = FV/ (1+I/Y)N

Calculate the PV of Rs. 500 that would be received in 10 years with a discout rate of 7%
Soln. Calculate using the calculator :
N = 10
FV = 500
I/Y = 7
CPT->
PV = -254.175

The negative shows money has to be invested.

Ordinary Annuity :

Calculate the future value of an ordinary annuity that pays Rs. 200 per year at the end of each year for next 20 yea
given a rate of Interest of 5%
Soln.

20
.
..

200

200

200

200

6,613.19

N = 20
PMT = - 200, Negative sign indicates the amount that has to be invested at the end of every year for next 20 years.
PV = 0
I/Y = 5
CPT -> FV = 6,613.19

PV of an ordinary annuity later the time = 1

Calculate the Present value of an annuity that pays Rs. 200 per year at the end of each year for 5 years, beginning

from now given a rate of return of 5%

0
1

200

PV = 824.66

200

200

200

200

PV = - 865.95
FV = 865.95
865.
95

This problem can be done in two steps :

a). Calculate the PV for the ordinary annuity :
N=5
PMT = 200
I/Y = 5
FV = 0
CPT -> PV = - 865.95 , -ve sign indicates money has to be invested.
b). Then discounting this value for 1 year :
FV = 865.95
N=1
I/Y = 5
PMT = 0
CPT -> PV = 824.66
One has to invest 824.66 today in order to earn an annuity of Rs. 200 for 5 years beginning at the
end of two years from now.

PV Of an annuity due
Q. Given a discount rate of 10%, what is the present value of a 3-year annuity that makes a series of Rs.200 payme
beginning of each of the next three years, starting today ?
Ans. First, let`s solve this problem using the calculator`s BGN mode. Set your calculator to the BGN mode
([2nd] [BGN} [2nd] [SET] [2nd] [Quit] on the TI or [g] [BEG] on the HP), enter the relevant data, and compute PV.
N=3;
I/Y=10;
PMT=-200;
CPT- PVAD=Rs.273.55

+200

+200

+200

PV = 697.37
Alternatively, this problem can be solved by leaving your calculator in the END mode. First, compute the PV of an
3-year annuity. Then multiply this PV by (1+I/Y). To use this approach, enter the relevant inputs and compute PV.
N=3; I/Y=10; PMT=-100; CPT-> PVAO=Rs. 248.69
PVAD = PVAO x (1+I/Y) =Rs. 633.97 x 1.10 = Rs. 697.37
Present Value of a perpetuity

Q. Assume the preffered stock of Khaitan Corporation pays Rs. 6 per year in annual dividends and plans to follow th
dividend policy forever. Given an 10% rate of return, what is the value of Kodon`s preffered stock?
Ans. Given that the value of the stock is the PV of all future dividends, we have :
PVperpetuity =6/0.1=Rs. 60
Thus, if an investor requires an 10% rate of return, the investor should be willing to pay Rs. 60 for each share of
Khaitan's preffered stock.

Computing the FV of an uneven cash flow series

Q. Using a rate of return of 10%, compute the fututre value of the 6-year uneven cash flow stream described above
at the end of the sixth year.
Ans. The FV for the cash flow stream is determined by first computing the FV of each individual cash flow, then sum
FVs of the individual cash flows. Note that we need to preerve the signs of the cash flows.
FV1:
PV=_1,000;
I/Y=10;
N=5;
FV2:

PV=_500;

I/Y=10;

N=4;

FV3:

PV=0;

I/Y=10;

N=3;

FV4:

PV=4000;

I/Y=10;

N=2;

FV5:

PV=3,500;

I/Y=10;

N=1;

FV6:

PV=2,000;

I/Y=10;

Computing PV of an uneven cash flow series

N=0;
FV of cash flow stream Sum of FVindividual

Q. Compute the present value of this 6-year uneven cash flow stream described above using a 10% rate of return.

Ans. This problem is solved by first computing the PV of each individual cash flow, then summing the pVs of the ind
flows, which yield the PV of the cash flow stream. Again the signs of te cash flows are preserved.
PV1:
FV=-1,000;
I/Y=10;
N=1;
PV2:

FV=-500;

I/Y=10;

N=2;

PV3:

FV=0;

I/Y=10;

N=3;

PV4:

FV=4,000;

I/Y=10;

N=4;

PV5:

FV=3,500;

I/Y=10;

N=5;

PV6:

FV=2,000;

I/Y=10;

N=6;
PV of cash flow stream Sum of PVindividual

It is also possible to compute PV of an uneven cash flow stream by using the cash flow (CF) keys and the
( NPV ) function on your calculator. This procedure is illustrated in the tables in Figure below. In the figure, we have
FO1, F02, etc. values because they are all equal to 1. The Fn variable indicates how many times a particular cash f
is repeated.
Fig.: NPV Calculator Keystrokes-TI BAII Plus
Key Strokes
[CF] [2nd] [CLR WORK]
0 [ENTER]
[ ] 1,000 [+/-] [ENTER]
[ ] [ ] 500 [+/-] [ENTER]
[ ] [ ] 0 [ENTER]
[ ] [ ] 4,000 [ENTER]
[ ] [ ] 3,500 [ENTER]
[ ] [ ] 2,000 [ENTER]
[NPV] 10 [ENTER]
[ ] [CPT]

Explanation
Clear CF Memory Registers
Initial Cash Outlay
Period 1 Cash Flow
Period 2 Cash Flow
Period 3 Cash Flow
Period 4 Cash Flow
Period 5 Cash Flow
Period 6 Cash flow
10% Discount Rate
Calculate NPV

Display
CFO = 0.00000
CFO = 0.00000
C01 = -1,000.00000
C02 = - 500.00000
C03 = 0.00000
C04 = 4,000.00000
C05 = 3,500.00000
C06 = 2,000.00000
I = 10.00000
NPV = 4,711.91226

Note that the BAII Plus Professional will give the NFV of 8,347.44 also if you press the key.
The effects of compounding frequency on FV and PV

Q. Compute the FV and PV of a Rs. 1,000 single sum for an investment horizon of one year using a stated annual i
of 6.0% with a range of compounding periods.
Ans. Fig. Compounding Frequency Effect
Compounding Frequency Interest Rate per Period
Effective Rate of InterestFuture Value
Annual (m=1)
6.00%
6.00%
$1,060.00
Semiannual (m=2)
3
6.09%
1,060.90
Quarterly (m=4)
1.5
6.136
1,061.36
Monthly (m=12)
0.5
6.168
1,061.68
Daily (m=365)
0.016438
6.183
1,061.83

There are two ways to use your financial calculator to compute PVs and Fvs under different compounding frequenc
1. Adjust the number of periods per year per year (P/Y) mode on your calculator to correspond to the compounding
frequency (e.g., for quarterly, P/Y = 4).

2. Keep the calculator in the annual compounding mode (P/Y=1) and enter I/Y as the interest rate per compounding
N as the number of compounding period in the investment horizon. Letting m equal the number of compounding pe
the basic formulas for the calculator input data are determined as :
I/Y = the annual interest rate /m ,
N= the number of years x m
The computations for the FV and PV amounts in the given fig. are:
PVA:

FV=-1,000;

I/Y=6/1=6;

N=1x1=1:

PVS:

FV=-1,000;

I/Y=6/2=3;

N=1x2=2:

PVQ:

FV=-1,000;

I/Y=6/4=1.5;

N=1x4=4:

PVM:

FV=-1,000;

I/Y=6/12=0.5;

N=1x12=12:

PVD:

FV=-1,000;

I/Y=6/365=0.016438;

N=1x365=365:

FVA:

PV=-1,000;

I/Y=6/1=6;

N=1x1=1:

FVS:

PV=-1,000;

I/Y=6/2=3;

N=1x2=2:

FVQ:

PV=-1,000;

I/Y=6/4=1.5;

N=1x4=4:

FVM:

PV=-1,000;

I/Y=6/12=0.5;

N=1x12=12:

FVD:

PV=-1,000;

I/Y=6/365=0.016438;

N=1x365=365:

Loan payment calculation: quarterly payments

Q. A company plans to borrow Rs.80,000 for five years. The company`s bank will lend the money at a rate of 10% a
that the loan be paid off in quarterly payments for next five years. Calculate the amount of the payment that the com
make in order to fuly amortize this loan in five years
Ans. To determine the annual loan payment, input the relevant data and compute PMT.
N=20 ( 5*4)
I/Y=10/4 =2.5
PV=-80,000
CPT-> PMT=Rs. 5,131.77

Thus, the loan can be paid off in Twenty equal quarterly payments of Rs. 5,131.77. Please note that FV=0 in this co
The loan will be fully paid off (amortized) after the Twenty payents have been made.
Constructing an amortization schedule
Q. Constuct an amortization schedule to show the interest and principal componenets of the end-of-year payments
5-year, Rs. 20,000 loan.

Ans. The first step in soving this problem is to compute the amount of the loan payments. This is done by entering t
relevant data and computing PMT:
N=5
I/Y=10%
PV=-Rs. 20,000
CPT->PMT= Rs. 5275.95 5275.95
Period

Beginning Balance

Payment

Interest
Component (1)

1
2
3
4
5

Rs. 20000
Rs. 16,724.05
13,120.51
9,156.61
4,796.32

5275.95
5275.95
5275.95
5275.95
5275.95

2000
1672.41
1312.05
915.66
479.63

1. Interest component = beginning balance x periodic interest rate. In period 3, the interest component of the payme
Rs. 13,120.51 x 0.10=Rs. 1312.051

2. Principal component = payment-interest. For example, the perod 4 principal component is 5275.95-1312.05=396

3. The ending balance in a given period, t, is the period`s beginning balance minus the principal component
of the payment, where the beginning balance for period t is the ending balance from period t-1. For example,
the period 2 ending balance equals Rs. 8,362.03-Rs. 1,801.77=Rs. 6,560.26,which becomes the period 3 beginning
balance.
Principal and interest component of a specific loan payment

Q. Suppose you borrowed Rs. 5,000 at 10% interest to be paid semiannually over 10 years. Calculate the amount o
outstanding balance for the loan after the second payment is made.

Ans. First the amunt of the payment must be determined by entering the relevant information and compuing he pay
PV=-Rs. 5000
I/Y=10/2=5
N=10 x 2=20
CPT->PMT=Rs. 401.22
The principal and interest component of the second payment can e determined using the following process:
Payment 1: Interest=(Rs.5,000)(0.05)=Rs. 250
Principal=401.22-250=151.22
Payment 2: Interest=(5,000-151.22)(0.05)=242.44
Principal=401.22-242.44= 158.78
Remaining balance = 5000 - 151.22 - 158.78 = 4690
Computing the required payment to fund an annuity due

Q. Suppose you must make five annual Rs. 2,000 payments, the first one starting at the beginning of year 4(end of
To accumulate the money to make these payments you want three equal payments into an investment account, the
made one year from today. Assuming a 10% rate of return, what is the amount of these three payments ?
Soln. The time line for this annuity problem is shown below :
0

-2,000

-2,000

-2,000 2000

-2000

-2,000

-2,000

-2,000 2000

-2000

FV3=$4,169.87

PMT1-3 1,260

1,260

1,260

The first step in this type of problem is to determine the amount of money that must be available at the beginning of
order to satisfy the payment requirements.
Leave your calculator in the END mode and compute the PV of a 5-year ordinary annuity and multiply by 1.10.
N=5
I/Y=10
PMT=-2,000
CPT->PV=7,581.57x1.1=PV3=Rs. 8339.93

PV3 becomes the FV that you need three years from today from your three equal end-of-year eposits. To determine

of the three payments necessary to meet this funding requirement, be sure that your calculator is in the END mode,
relevant data, and compute PMT.
N=3
I/Y=10
FV=-8339.93
CPT->PMT=Rs. 2,5196.61
Funding A retirement Plan

Q. Assume a 35 year-old investor wants to retire in 25 years at the age of 60. She expects to earn 12.5% on her inv
prior to her retirement and 10% thereafter. How much must she deposit at the end of each year for the next 25 year
be able to withdraw Rs. 45,000 per year at the beginning of each year for the 30 years from age 60 to 90 ?

Ans. This is a two-step problem. First determine the amount that must be on deposit in the retirement account at the
25 in order to fund the 30-year, Rs. 45,000 annuity due. Second, compute the annuity payments that must be made
the required amount
Step 1 : Compute the amount required to meet the desired withdrawls.
The required amount is the present value of the Rs. 25,000, 30-year annuity due at the eginning of year 26 (end of
This can be determined by entering the relevant data, with the calculator in the END mode, and computing PV.
N=29
I/Y=10
PMT=-Rs. 45,000
CPT->PV=Rs. Rs. 421,632 (for 29 years)

Now add the first annuity payment to get Rs. 421,632 + Rs. 45,000= Rs. 466,632.66 The investor will need Rs. 466
at the end of year 25.
Step 2 : The annuity payment that must be made to accumulate the required amount over 25 years can be determin
entering the relevant data and computing PMT.

N=25
I/Y=12.5
FV=466,632.66
CPT->PMT= - 3240.04

Thus, the investor must deposit Rs. 3240.04 per year at the end of each of the next 25 years in order to
accumulate Rs. 466,632.66. With this amount she will be able to withdraw Rs. 45,000 per year for the following 30 y

nually compounded

has to be invested.

of each year for next 20 year,

very year for next 20 years.

year for 5 years, beginning 2 years

eginning at the

es a series of Rs.200 payments at the

to the BGN mode

t data, and compute PV.

First, compute the PV of an ordinary

inputs and compute PV.

dends and plans to follow this

Rs. 60 for each share of

ow stream described above

dividual cash flow, then summing the

CPT->FV=FV1=-1,610.51
CPT->FV=FV2=-732.05
CPT->FV=FV3=0.00
CPT->FV=FV=4,840.00
CPT->FV=FV5=3,850.00
CPT->FV=FV6=2,000.00
8,347.44

using a 10% rate of return.

summing the pVs of the individual cash

CPT->PV=PV1=-909.09
CPT->PV=PV2=-413.22
CPT->PV=PV3=0
CPT->PV=PV4=2,732.05
CPT->PV=PV5=2,173.22
CPT->PV=PV6=1,128.95
$4,711.91

(CF) keys and the net present value

elow. In the figure, we have omitted the
ny times a particular cash flow amount

year using a stated annual interest rate

Present Value
$943.40
942.596
942.184
941.905
941.769

rent compounding frequencies:

spond to the compounding

erest rate per compounding period,and

number of compounding periods per year,

CPT->PV=PVA=943.396
CPT->PV=PVS=942.596
CPT->PV=PVQ=942.184
CPT->PV=PVM =941.905
CPT->PV=PVD =941.769
CPT->FV=FVA=1,060.00
CPT->FV=FVS=1,060.90
CPT->FV=FVQ=1,061.36
CPT->FV=FVM=1,061.68
CPT->FV=FVD=1,061.83

he money at a rate of 10% and requires

of the payment that the company must .

se note that FV=0 in this computation;

f the end-of-year payments for a 10%,

s. This is done by entering the

Principal
Component (2)

Ending
Balance (3)

3275.95
3,603.55
3,963.90
4,360.29
4,796.32

est component of the payment is

nt is 5275.95-1312.05=3963.90

principal component
iod t-1. For example,
omes the period 3 beginning

ars. Calculate the amount of the

ation and compuing he payment.

e following process:

beginning of year 4(end of year 3).

an investment account, the first to be
three payments ?

-2000

Rs. 16,724.05
13,120.51
9,156.61
4,796.32
0.00

-2000

available at the beginning of year 4 in

y and multiply by 1.10.

-year eposits. To determine the amount

culator is in the END mode, input the

cts to earn 12.5% on her investments

ch year for the next 25 years in order to
rom age 60 to 90 ?

he retirement account at the end of year

ayments that must be made to achieve .

eginning of year 26 (end of year 25).

de, and computing PV.

e investor will need Rs. 466,632.66

er 25 years can be determined by

years in order to
er year for the following 30 years.

Computing NPV

Q. Calculate the NPV of an investment project with an initial cost of Rs. 10 million and positive cash flows of Rs. 2
at the end of year 1, Rs. 8 million at the end of year 2, and Rs. 10 million at the end of year . Use 10% as the disc

Ans. The NPV for this project is the sum of the PVs of the project`s individual cash flows and is determined as follow
NPV = -Rs. 10.0 + Rs. 2/1.10 + Rs. 8/(1.10)2 + Rs. 10/(1.10)3
= Rs. 5.94 million

The procedures for calculating NPV with a TI BAII Plus and an HP12C hand=held financial calculator are presented
below:
Figure: Calculating NPV with the TI Business Analyst II Plus
Key Strokes
[CF] [2nd] [CLR WORK]
5[+/-] [ENTER]
[ ] 1.6 ENTER]
[ ] [ ] 2.4 [ENTER]
[ ] [ ] 2.8 [ENTER]
[NPV] 12 [ENTER]
[ ] [CPT]

Explanation
Clear CF Memory Registers
Initial Cash Outlay
Period 1 Cash Flow
Period 2 Cash Flow
Period 3 Cash Flow
12% discount rate
Calculate NPV

Display
CF0=0.00
CF0=-10.00
C01=2.00
C02=8.00
C03=10.00
I=10.00000
NPV=5.9429

Computing IRR
Q. What is the IRR for the investment described in the preceding example?
Ans. Substituting the investment`s cash flows into the IRR equation results in the following equation:
0= -10.0+ 2/(1+IRR) + 8/(1+IRR)2 + 10/(1+IRR)3
Solving this equation yields an IRR=34.614%.

It is possible to solve IRR problems throuh a trial and error process. That is, keep guessing IRRs until you get the o
provides an NPV equal to zero. Practically speaking, a financial calculator or an elecronic spreadsheet can and sho
employed. The procedures for computing IRR with the TI BA II Plus :
Key Strokes
[CF] [2nd] [CLR WORK]
5[+/-] [ENTER]
[ ] 1.6 [ENTER]
[ ] [ ] 2.4 [ENTER]
[ ] [ ] 2.8 [ENTER]
[IRR] [CPT]

Explanation
Clear Memory Registers
Initial Cash Outlay
Period 1 Cash Flow
Period 2 Cash Flow
Period 3 Cash Flow
Calculate IRR

Display
CF0=0.00
CF0=-10.00
C01=2.00
C02=8.00
C03=10.000
IRR=34.614

Conflicting decisions between NPV and IRR

Q. Assume NPV and IRR analysis of two mutually exclusive projects produced the results shown in Fig. below. As in

IRR criteria recommends that Project A should be accepted. On the other hand, the NPV criteria indicates accepta
project B. Which project should be selected?
Figure : Ranking Reversals with NPV and IRR
Project
A
B

Investment at t=0
Rs. -10,000
Rs. - 60,000

Cash Flow at t=1

Rs. 16,000
Rs. 80,000

IRR
60%
33%

Ans. Investing in project A increases shareholder wealth by Rs. 4,545.45, while investing in project B increases shar
wealth by Rs. 12,727.27. Since the overall goal of the firm is to maximise shareholder wealth, project B should be
because it adds the most value to the firm.
-

positive cash flows of Rs. 2 million

of year . Use 10% as the discount rate.

ws and is determined as follows:

ncial calculator are presented in Figures

wing equation:

ssing IRRs until you get the one that

nic spreadsheet can and should be

ults shown in Fig. below. As indicated, the

NPV criteria indicates acceptance of

NPV at 10%
Rs. 4545.45
Rs. 12,727.27

ng in project B increases shareholder

r wealth, project B should be selected

Experiential Learning!!! Basic elements in financial modeling

Simple Lump Sum
What is the FV of an initial $100 after 3 years if the discount rate is 10%
Assumptions:
1st method
PV
$ 100
Time
Cash flow
Time
3
0
$ 100 pricipal
interest
Interest rat
10%
1
110
100
10
2
121 100+10
11
FV
($ 133.10) (3rd method)
3
133.1
Excel Functions - FV
4
5
6
7
Ordinary Annuity
8
9
Discount rate
5%
10
Time

Cash flow PV
0
1
2
3

FV

PV

100 95.2381 ?
100 90.70295 ?
100 86.38376 ?
272.32 ?
Give one extra period interest to get the answer for Annuity Due
($272.32)
-285.94

FV

($315.25)

Total

-331.01

Annuity Due
Discount rate

5%

Time
0
1
2
3

PV
100
100
100 95.2381
100 90.70295

Total
PV

($285.94)

285.94

FV

($331.01)

Ex 2.An individual deposits $10,000 at the beginning of each of the next 10 years, starting today, into an account
The amount of money in the account at the end of 10 years will be closest to:
Discount rate
Time

Cash flow

Ex 3.An investment promises to pay $100 one year from today, $200 two years from today, and $300 three years
If the required rate of return is 14 percent, compounded annually, the value of this investment today is closest to:
Discount rate
Time

Cash flow

FV = PV x (1 + r) ^n
Formula (2nd method)
110
121
133.1
146.41
161.051
177.1561
194.8717
214.3589
235.7948
259.3742

Financial Calculator convention - Why you see -ve sign in answer for Exc
you have $100 with you today and you want to invest it
let us say we go to ICICI bank (in NY city) and we deposit it
we have to give the money to the bank, it is a cash outflow
PV we have put +$100; in other words we are giving +ve sign to outflow

after 3 years then what happens? ICICI bank will return the money back to you
that means it is an inflow; then calculator says OK you gave + sign to outflow
therefore it means -ve sign for inflow back to you

this is a convention followed by all financial calculator and since excel was buil
as a calculator (financial) it is also following the same convention

nswer for Annuity Due

s, starting today, into an account paying 9 percent interest compounded annually.

ars will be closest to:

rom today, and $300 three years from today.

ent today is closest to:

e sign in answer for Excel function like PV

+ve sign to outflow

rn the money back to you

u gave + sign to outflow

r and since excel was built

Suppose an investor wishes to have Rs. 1 Crores at the time of retirement, which is 20 years away, how much money does he
interest rate is 10% compounded annually
PV
FV
Time
Interest rate
Compounding annual

-14.86
100
20 years
10%

Simple retirement planning model!!!

how much money does he need to set aside today if the appropriate'

1)
Whats the value of a 10-year, 10% annual coupon bond if k d = 10%?
Assumptions:
Maturity
Discount rate:
Coupon rate
Coupon amount
Principal
Method 1

1) Premium
2) Par
3) Discount

10 years
8%
10%
100
1,000

$
$

1) Annuity

Discount rate > Coupon

$100, 10 years, 10%

> 1000
1000
< 1000

Method 2

$ 671.01

$ 1,134.20

2) lumpsum: $1000, 10 years, 10%

$ 463.19
Price

1+2
$ 1,134.20

2)

Suppose that we have a 3-year, 6% semiannual coupon bon

Data given/ Assumptions:
Years
Maturity
Coupon rate
YTM
Par value
Coupon

Semi
3
6%
12%

6
3%
6%

$ 1,000
30 (every 6 months)

Model:
Time

Semiannual CF's
0
0 ???
0.5
1 $
30
1
2 $
30
1.5
3 $
30
2
4 $
30
2.5
5 $
30
3
6 $ 1,030
Total

2nd method
Annuity + lumpsun

1st method
PV(CF's)
28.301886792
26.6998932
25.188578491
23.762809897
22.417745186
726.10935665
852.48027022

you do as homework

3rd method

Excel Functio

$ 852.48

3)

Suppose that we have a 5-year, Zero Coupon bond. Calculat

4)

Assume a preferred stock A has a$100 par value and a dividend of $8 a year.
Thus, the value of this preferred stock A is

5)

What is the value of a stock that last year paid a $1 dividend. You think next
The required return or the discount rate is 11%.

6)

Assuming a holding period of three years with the following estimated dividen
Assume an estimated sale price of $57, three years from now. Required rate of return is 15

7)

What is the value of the stock that paid $2 dividend last year if dividends are

8)

scount rate > Coupon

Discount rate < Coupon rate
Discount rate = Coupon rate
Discount rate > Coupon rate

Method 3
time
CF
1 $
100
2 $
100
3 $
100
4 $
100
5 $
100
6 $
100
7 $
100
8 $
100
9 $
100
10 $ 1,100
Total

PV(CF)
92.59259
85.73388
79.38322
73.50299
68.05832
63.01696
58.34904
54.02689
50.0249
509.5128
1134.202

ual coupon bond. Calculate the value of the bond with a YTM of 12%

n bond. Calculate the value of the bond with a YTM of 8%.

vidend of $8 a year. Because of inflation, uncertainties and tax advantage, the required

end. You think next years dividend will be 10% higher and the stock will be selling for $

ng estimated dividend payments: Year 1 = $1.10; Year 2 = 1.25 and Year 3 = 1.50.
uired rate of return is 15%.

year if dividends are expected to grow at 5% forever? The required rate of return is 12%

h a YTM of 12%.

ntage, the required rate of return is 9%.

will be selling for $25 at year-end.

Year 3 = 1.50.

te of return is 12%