You win the lottery and select the option to receive 20 annual payments of one million dollars (an ordinary annuity). If today is January 1, 2018, and the first payment is made January 1, 2019, what will be the value of the remaining payments as of January 2, 2030 if the interest rate is 5%?
You win the lottery and select the option to receive 20 annual
payments of one million dollars (an ordinary annuity). If today is January 1, 2018, and the first payment is made January 1, 2019, what will be the value of the remaining payments as of January 2, 2030 if the interest rate is 5%? (Hint: use the ordinary annuity formula with the number of payments remaining from January 2, 2030 until the 20th overall payment.)
2. Assume Microsoft just paid a dividend of $1.56 per share. Your required rate of return is 10%, and the analysis you’ve done tells you that Microsoft should be able to grow its dividend by a rate of 7% per year. What is the most you should be willing to pay for this stock? Now let’s say you go on a two year trip around the world and come back to find that your analysis of Microsoft has not changed. What is the most you should be willing to pay per share of Microsoft stock after your two year vacation?
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