Submitted by InfoQueenReg on January 22, 2008

• Category: Business
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Problem Set Ii

9-17 Present Value
Jack Hammer invests in a stock that will pay dividends of $2.00 at the end of
the first year; $2.20 at the end of the second year; and $2.40 at the end of the
third year. Also, he believes that at the end of the third year he will be able to
sell the stock for $33. What is the present value of all future benefits if a
discount rate of 11 percent is applied? (Round all values to two places to the
right of the decimal point.)

Answer:
The following formula to calculate the present values:
PV = FV/(1+r)^t
where FV is the cash flow,
discount rate r = 11%
t = year

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