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1)What is the present value of a $7,000 payment per year, with the first cash flow received 3 years from today and the last one received 7 years from today? Use a discount rate of 7 percent
1)What is the present value of a $7,000 payment per year, with the first cash flow received 3 years from today and the last one received 7 years from today? Use a discount rate of 7 percent.
2). You are evaluating a growing perpetuity investment from a large financial services firm. The investment promises an initial payment of $11,000 at the end of this year, and subsequent payments will grow at a rate of 4.4 percent annually. If you use a 7 percent discount rate for investments like this, what is the present value of this growing perpetuity?
3)You have just won the lottery and will receive $150,000 in one year. You will receive payments for 10 years, which will increase 3 percent per year. If the appropriate discount rate is 7 percent, what is the present value of your winnings?
Expert Solution
1)
PV of Annuity(2 years from now) = Annual Payment * [{1 - (1 + r)-n} / r]
= $7,000 * [{1 - (1 + 0.07)-5} / 0.07]
= $7,000 * [0.2870 / 0.07]
= $7,000 * 4.1002
= $28,701.38
PV of Annuity now = PV of Annuity(2 years from now) / (1 + r)n
= $28,701.38 / (1 + 0.07)2
= $28,701.38 / 1.1449
= $25,068.90
2)
given cashflow at year end is $11,000
discount rate is 7%
growth rate is 4.4%
present value =
please see the attached file.
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