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Assume that capital markets are perfect. Find the present day price of the fol lowing cash streams. (a.) You will be paid $100 in 5
Assume that capital markets are perfect. Find the present day price of the following cash streams.
(a.) You will be paid $100 in 5 years for sure and the annual interest rate is 10%.
(b.)You will be paid $100 in 5 years with probability 1/2, $50 with probability
1/2, and the annual interest rate is 10%.
(c.) You will be paid $100 in 1 year for sure. The annual interest rate is subject to uncertainty and will be 15% with probability 1/2 and 5% with probability 1/2.
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