QUESTION 12 Part A: At a rate of 2.5%, what is the present value (measured at...

QUESTION 12

Part A: At a rate of 2.5%, what is the present value (measured at the end of year 4) of the following cash flow stream: $0 at Time 0; $1,000 at the end of Year 1; $3,500 at the end of Year 2; $0 at the end of Year 3; and $5,500 at the end of Year 4?

a. $10,203

b. $9,289

c. $10,306

d. $10,358

e. $10,410

Part B: What annual payment must you receive in order to earn a 6.5% rate of return on a perpetuity that has a cost of $4,800?

a. $352.56

b. $255.84

c. $349.44

d. $283.92

e. $312.00

Solutions

Expert Solution

Part A:

PV = FV / (1 +r)^t

PV = $1,000/1.025 + $3,500/1.025^2 + $5,500/1.025^4

PV = $9,289

Part B:

Annual payment = $4,800 * 0.065

Annual payment = $312.00

jeff jeffy answered 2 years ago

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