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4-27) What is the present value of a perpetuity of $100 per year if the appropriate discount rate is 7%? If interest rates in general
4-27) What is the present value of a perpetuity of $100 per year if the appropriate discount rate is 7%? If interest rates in general were to double and the appropriate discount 14%, what would happen to the present value of the perpetuity? ue of a petuity rate rose to Assume that you inherited some money. A friend of yours is working as an unpaid intern at a local brokerage firm, and her boss is selling securities that call for 4 pay- ments of $50 (1 payment at the end of each of the next 4 years) plus an extra pay- ment of $1,000 at the end of Year 4. Your friend says she can get you some of these securities at a cost of $900 each. Your money is now invested in a bank that pays an 8% nominal (quoted) interest rate but with quarterly compounding. You re- gard the securities as required effective annual rate of return on the securities is the same as that on your bank deposit. You must calculate the value of the securities to decide whether they good investment. What is their present value to you? being just as safe, and as liquid, as your bank deposit, so your are a
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