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Question 2 on Bond Valuation Assume the discount rate is 3 percent per year for all maturities. Everyone can borrow and lend at this rate.
Question 2 on Bond Valuation Assume the discount rate is 3 percent per year for all maturities. Everyone can borrow and lend at this rate. (A). A bank sells financial security that pays $100 a year, beginning a year from now. The security expires after making 20 annual payments. What is today's price of the financial security? (B). What is today's price of a "future" perpetuity that pays $200 at the end of every year, with the first payment made five years from now, rather than the usual one year from now? In other words, this "future" perpetuity pays $200 at the ends of years 5, 6, 7, ... (C). You win the lottery! It pays you in 30 annual installments. The first installment is $1,000, paid to you a year from now. The amounts of future installments decline by five percent each year. For example, the payment in two years is $1,000/1.05, and the payment in three years is $1,000/(1.052). What is today's market value of the lottery payments
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