Homework 3: MBA 508 Please draw timelines to see cash flows and questions will become casy to understand. I will add more 1. Perpetuities An investor purchasing a British consol is entitled to receive annual payments from the questions next week. British government forever. What is the price of a consol that pays $125 annually if the next payment occurs one year from today? The market interest rate is 3.9 percent. 125 00 35 Present Value and Multiple Cash Flows Wilkinson Co. has identified an investment project with the following cash flows. If the discount rate is 10 percent, 1) what is the present value of these cash flows? 2) What is the future value of these cash flows at the end of year 4? 3) What is the present value at 18 percent? 2. S 675 880 985 1,530 NPY-2.592 6 3. Present Value and Multiple Cash Flows Investment X offers to pay you $3,900 per year for nine years, whereas Investment Y offers to pay you $6,100 per year for five years. Which of these cash flow streams has the higher present value if the discount rate is 5 percent? If the discount rate is 22 percent? 4. Caleulating Annuity Present Value An investment offers $5,650 per year for 15 years, with the first payment occurring one year from now. If the required return is 8 perent, what is the value of the investment? What would the value be if the payments occurred for 40 years? For75 years? Forever? 7o,4 Os.2 5. Caleulating EAR Find the EAR in each of the following cases: APR Number of Times Compounded 0 -) EAR EAR-G+ 6.70% 12.4 9.8 8.4 Quarterly Monthly Daily Infinite 131 9 10-29 C140.12/12)