Kathy Myers frequently purchases stocks and bonds, but she is uncertain how to determine the rate of return that she is earning. For example, three years ago she paid $25,000 for 1,200 shares of Malti Company’s common stock. She received a $1,032 cash dividend on the stock at the end of each year for three years. At the end of three years, she sold the stock for $24,000. Kathy would like to earn a return of at least 13% on all of her investments. She is not sure whether the Malti Company stock provided a 13% return and would like some help with the necessary computations.
Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.
Required:
1. Compute the net present value that Kathy earned on her investment in Malti Company stock.
2. Did the Malti Company stock provide a 13% return?