Question
1.The fair rate is 8%. What is 100 per year, forever, worth now? (1250) =PV(0.08,1000,100,0) PMT = -100 r = .08 n = 1000 (you
1.The fair rate is 8%. What is 100 per year, forever, worth now? (1250)
=PV(0.08,1000,100,0)
PMT = -100
r = .08
n = 1000 (you want to use a relatively large number since this is an infinite time period)
FV = 0 (since we don't know the future value)
PMT/I=100/.08=1250
2.What is the same 100 per year worth if it only lasts for 15 years? (855.948)
=PV(0.08,15,100,0)
3.What if the 100 was the past cash flow and we expect it to grow at 5% forever? (3500)
. CF(0)*(1+g)=CF(1)
CF(1)/(I-g)=(100*1.05)/(.08-.05)=3500
4.What if we only get the 100 once at the end of this year? (92.59)
=PV(0.08,1,0,-100)
PV= FV(N) / (1+r) ^n
= 100 / (1.08) ^ 1
=92.59
5.What if it we get it once, at the end of ten years? (46.319)
What is 100 in ten years worth now at 8%
100/(1.08)^10
=PV(0.08,10,0,-100)
6.If we get the 100 each year for ten years and invest each payment in an account that earns 8% how much will be there at the end? (1448.66)
=FV(0.08,10,100,0)
All the questions are linked solved with answers in "(...)" . They are missing a few steps which is confusing me. I am completely lost on 3. Can some one explain each question step by step so that I have a better understanding?
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