Question
3.Suppose you know that the discount rate for the period from the beginning of year zero to the end of year zero is 2%, likewise
3.Suppose you know that the discount rate for the period from the beginning of year zero to the end of year zero is 2%, likewise for year one it is 3%, for year two it is 4%, for year three it is 5%, and for year four it is 6%, for year five it is 7%, and remains at 7% for the years following. Assume also that you have a stream of benefits from a project starting at the beginning of year zero and continuing to the beginning of year seven as follows: B0, B1, B2, B3, B4, B5, B6, B7. (a) What are the discount factors that you would apply to the benefits for the beginning of year six if you were evaluating its present value from the perspective of the beginning of year two? (b) What is the discount factor you would apply to the benefits accurancy at the beginning of year four if you are evaluating its present value from the perspective of the beginning of year 8 ?
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