Use the Appropriate Factors from Table 6-4 or Table 6-5

question 25

Essay

Use the appropriate factors from Table 6-4 or Table 6-5 to answer the following question.(a.) ABC Co.'s common stock is expected to have a dividend of $8 per share for each of the next six years, and it is estimated that the market value per share will be $78 at the end of six years. If an investor requires a return on investment of 10%, what is the maximum price the investor would be willing to pay for a share of ABC Co. common stock today?
(b.) Gregory bought a bond with a face amount of $1,000, a stated interest rate of 12%, and a maturity date 20 years in the future for $980. The bond pays interest on a semi-annual basis. Eight years have gone by and the market interest rate is now 8%. What is the market value of the bond today?

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Definitions:

\(- 1\)

Represents a negative unit value in mathematics, often used to indicate the opposite or additive inverse of a positive value.

\(- 1\)

A numeric value that is one less than zero, often representing the inverse of a quantity.

\(n + 7\)

An algebraic expression representing the sum of an unknown quantity \(n\) and the number 7.

\(n + 8\)

An algebraic expression representing the sum of a variable n and the number 8.