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Finance stock homework help

  1. Nov 26, 2005 #1
    I need some help on some finance questions
    1) A stock that sold for $22 at the beginning of the year was selling for $24 at the end of the year. If the stock paid a dividend of $0.50 per share, what is the simple interest rate on an investment in thei stock?

    the simple interest rate formula is
    A=P(1+rt)
    so A=24
    P=22
    t=1
    r=?
    am I on the right tract? What do you do with the $0.50 per share?

    2. A developer needs $ 80,000 to buy land. He is able to borrow the money at 10% per year compounded quarterly. How much will the interest amount to if he pays off the load in 5 years?

    compound interest formula is
    A=P(1+i)^n....do you use this formula?
    I don't really understand what the question is asking.

    Thanks.
     
  2. jcsd
  3. Nov 26, 2005 #2

    HallsofIvy

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    If the stock was sold for $24 after receiving the dividend of $0.50, so you actually get back $24.50. Use that formula with A= 24.50, not 24 and solve for r.
    Can we assume that he pays the $80,000 principal back at the end of the 5 years? Because if he pays back part of the principal each month, say, the formula becomes a lot more complicated!
    Yes, assuming that, as I just said, he has to pay interest on the entire $80,000 for the entire 5 years, you can use A= P(1+i)n. However, because it is "compounded quarterly" you have to figure it in quarters. i= 0.10/4= 0.025, the interest per quarter instead of per year. And, of course, n= 4*5= 20 quarters, not 5 years. Taking P= 80000, find A. That's the entire amount paid- principle and interest. Subtract the $80,000 principle to find how much of it was interest.
    You can approximate that, to check your answer, by using simple interest. At 10% interest for 5 years, his interest would amount to 5*10%= 50%. 50% of $80,000 is $40,000. Of course, compounded quarterly, his interest will amount to more than that.

    Since this problem doesn't have anything to do with "Calculus and Analysis" and looks to me like homework, I am moving it
     
    Last edited: Nov 26, 2005
  4. Nov 27, 2005 #3
    for 1) the rate is 11.36%
    for 2) the interest is $51089.32
    am i correct?
     
  5. Nov 27, 2005 #4

    HallsofIvy

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    That's what I get.
     
  6. Nov 27, 2005 #5
    thanks a lot
     
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