Question
Assume you receive $60,000 a fixed amount of payment for 5 years. The first payment will be received 6 months after today and the payments
Assume you receive $60,000 a fixed amount of payment for 5 years. The first payment will be received 6 months after today and the payments will continue semi-annually until the end of the 5th year. You approach a bank to borrow some money that will be secured by the present value of the future income stream.
(i) What is the Present Value of the future income stream using a semi-annual compounding interest rate of 5.00%?
(ii) What is the Present Value of the future income stream using the same information as for part (i) except that each payment is made at the start of each 6 month period?
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