Noel Klinger Is Planning to Invest in an Insurance Company

question 97

Multiple Choice

Noel Klinger is planning to invest in an insurance company product. The product will pay $12,500 at the end of this year. Thereafter, the payments will grow annually at a 2.5 annual percent rate forever. Jack will be able to invest his cash flows at an annual rate of 5.5 percent. What is the present value of this investment cash flow stream? (Round to the nearest dollar.)

• A) $326,908
• B) $312,766
• C) $416,667
• D) $446,667

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Definitions:

Retained Earnings

The portion of net earnings not paid out as dividends but retained by the company to be reinvested in its core business or to pay debt.

Market Price

The market price is the current price at which an asset or service can be bought or sold in a marketplace.

Corporate Dividends

Funds disbursed by a corporation to its shareholders, typically as a distribution from profits.