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Question 1. (a) What is the present value of a perpetuity of $200 per year if the appropriate discount rate is 7%? If interest rates
Question 1.
(a) What is the present value of a perpetuity of $200 per year if the appropriate discount rate is 7%? If interest rates in general were to double and the appropriate discount rate rose to 15%, what would happen to the present value of the perpetuity?
(b) Your company is planning to borrow $2 million on a 3-year, 15%, annual payment, fully amortized term loan. What fraction of the payment made at the end of the second year will represent repayment of principal?
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