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Quick Finance Question

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  1. NYRFan88 NYRFan88 is offline

    New York, NY
    United States

    Posts: 151
    Joined: Oct 07

    Oct 23rd, 2007 (10/23/2007 5:56am)

    Question: A riskfree security pays a divdend of $200 after one year, $400 after two years, $800 after three years, and thereafter it never pays dividends again. The riskfree interest rate is 3% per year. What is the current price of the security?

    a)$1203.3
    B)1303.3
    C)1345.2
    D)1400

    Anyone know how to do this? I dont remember how to price a security by its divdends.
  2. Scha Scha is offline Creator of SchaArcade & SchaCam

    Trondheim
    Norway

    Posts: 9,187
    Joined: Jan 06

    Oct 23rd, 2007 (10/23/2007 6:30am) in reply to NYRFan88

    E) All of the above
  3. Acoplander1 Acoplander1 is offline

    Cambridge, MA
    United States

    Posts: 47
    Joined: Sep 05

    Oct 23rd, 2007 (10/23/2007 6:55am) in reply to NYRFan88

    ( [ ( [800*(1/1.03)] + 400 ) * (1/1.03) ] + 200 ) * (1/1.03)

    = 1303.3 B)

    Let's see... 1303.3 * 1.03 = 1342.4, minus 200 dividends = 1142.4. 1142.4 * 1.03 = 1176.7, minus 400 dividends = 776.7. 776.7 * 1.03 = 800, minus 800 dividends = 0 (security never pays out again afterwards).

    Amirite?
  4. BigGunX BigGunX is offline Mr OT Party

    Williamsburg, VA
    United States

    Posts: 21,287
    Joined: Feb 05

    Oct 23rd, 2007 (10/23/2007 8:22am) in reply to Acoplander1

    You know you are, silly.
     
  5. buchiYAYO buchiYAYO is offline

    Hampton, VA
    United States

    Posts: 9,218
    Joined: May 06

    Oct 23rd, 2007 (10/23/2007 8:24am) in reply to NYRFan88

    Dont you have a finacial calcu;ator? Just punch that shit in there and it gives you the answer
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