Kathy Myers frequently purchases stocks and bonds, but she is uncertain how to determine the rate ofreturn that she is earning. For example, three years ago she paid $13,000 for 200 shares of Malti Company’s common stock. She received a $420 cash dividend on the stock at the end of each year for three years.At the end of three years, she sold the stock for $16,000. Kathy would like to earn a return of at least 14%on all of her investments. She is not sure whether the Malti Company stock provided a 14% return andwould like some help with the necessary computations.Required:(Ignore income taxes.) Using the net present value method, determine whether or not the Malti Companystock provided a 14% return. Use the general format illustrated in Exhibit 12–2 and round all computationsto the nearest whole dollar.
Kathy Myers frequently purchases stocks and bonds, but she is uncertain how to determine the rate of
return that she is earning. For example, three years ago she paid $13,000 for 200 shares of Malti Company’s common stock. She received a $420 cash dividend on the stock at the end of each year for three years.
At the end of three years, she sold the stock for $16,000. Kathy would like to earn a return of at least 14%
on all of her investments. She is not sure whether the Malti Company stock provided a 14% return and
would like some help with the necessary computations.
Required:
(Ignore income taxes.) Using the
stock provided a 14% return. Use the general format illustrated in Exhibit 12–2 and round all computations
to the nearest whole dollar.
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