1 Philip owns an investment Echo and 1 share of stock Foxtrot. The total value of his holdings is $400. Stock Foxtrot has an annual expected return of 17 percent. The stock’s next annual dividend is expected to be $5.5 in 1 year and all subsequent dividends are expected to grow annually by 7 percent forever. Investment Echo has an expected return of 11% and is expected to pay X per year for a finite number of years such that its first annual payment is expected later today and its last annual payment is expected in 9 years from today.

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a. What is X, the annual cash flow made by investment Echo?

2. Peter owns an investment alpha and 1 share of stock bravo. The total value of his holdings is $300. Stock Bravo is expected to be priced at $40 in 4 years, is expected to pay dividends of $3 in 1 year and $4 in 3 years, and has an annual expected return of 12 percent. Investment Alpha has an expected return of X and is expected to pay $31 per year for a finite number of years such that its first annual payment is expected in 1 year from today and its last annual payment is expected in 10 years from today.

a. What is X, the expected return for investment Alpha? Get Finance Help Today

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