Jack Hammer invests in a stock that will pay dividends of $2.00 at the end of the first year; $2.20 at the end of the second year; and $2.40 at the end of the third year. Also, he believes that at the end of the third year he will be able to sell the stock for $33. What is the present value of all future benefits if a discount rate of 11 percent is applied? (Round all values to two places to the right of the decimal point.)

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Originally Posted by husker12

Jack Hammer invests in a stock that will pay dividends of $2.00 at the end of the first year; $2.20 at the end of the second year; and $2.40 at the end of the third year. Also, he believes that at the end of the third year he will be able to sell the stock for $33. What is the present value of all future benefits if a discount rate of 11 percent is applied? (Round all values to two places to the right of the decimal point.)

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Did you get the answer to this. I'm going to uop and the Eresource book is no help, if so email me at [email protected]

I am not sure but I think it will be like this:

This is how you should calculate:

Suppose discount rate is r%

1. Present Value for something you will get after 1 year

Value of 100 after 1 year is 100 (1 +r/100) = say x

Present value of x = 100

Present value of 1 = 100/x

Present Value of $2 = 200/x

2. Present Value for something you will get after 2 years

Value of 100 after 2 years is 100 (1 +r/100)^2 = say y

Present value of y = 100

Present value of 1 = 100/y

Present value of 2.20 = 2.20 times 100/y

3. Present Value for something you will get after 1 year

Value of 100 after 3 year is 100 (1 +r/100)^3 = say z

Present value of z = 100

Present value of 1 = 100/z

Present value of 2.40 = 2.40 times 100/z

Present value of 33 = 33 times 100/z

Quote:

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Originally Posted by husker12

Jack Hammer invests in a stock that will pay dividends of $2.00 at the end of the first year; $2.20 at the end of the second year; and $2.40 at the end of the third year. Also, he believes that at the end of the third year he will be able to sell the stock for $33. What is the present value of all future benefits if a discount rate of 11 percent is applied? (Round all values to two places to the right of the decimal point.)

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$2.00/1.11 = 1.80

$2.20/ 1.11/1.11 = 1.79

$2.40/ 1.11 /1.11 /1.11 = 1.75

$33/ 1.11/1.11/1.11= 24.12

1.80+1.79+1.75+24.12 = $29.46