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Answer the following short answer questions: a) Given an interest rate of 8%, how much is a perpetuity of $100,000/year worth? b) How much would
Answer the following short answer questions:
a) Given an interest rate of 8%, how much is a perpetuity of $100,000/year worth? b) How much would the same perpetuity be worth if it was expected to grow at a rate of 3% annually? How much additional value is attributable to growth? c) How much would a 25-year zero-growth annuity be worth with the same discount rate? Comment on how this value compares to what you computed in (a). d) Explain how you would handle a situation whereby the growth for the first five years was expected to be 10% prior to settling in at 3%/year thereafter. Note: you don't have to calculate the new value but rather explain and / or show how you would solve thisStep by Step Solution
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