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16. Suppose that a security will generate the following cashflows. Starting with a payment of $100 in 3 years, annual payments will increase at a
16. Suppose that a security will generate the following cashflows. Starting with a payment of $100 in 3 years, annual payments will increase at a rate of 4% until year 10 . Starting in year 11 until forever, the annual payments will be equal in magnitude to the amount paid in year 10 . If the rate of return you can earn in this market is 6%, what is the fair price of this security today? a) (1.06)20.060.04100[1(1.061.04)8]+(1.06)10100(1.04)7 b) (1.06)30.060.04100[1(1061.04)8]+(1.06)10100(1.04)7 c) (1.06)30.060.04100[1(1.061.04)10]+(1.06)10100(1.04)? d) 0.060.04100[1(1.061.04)10]+0.06100(1.04)7
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