Question
Show work: 3. a.) What is the time 0 value of a $300 perpetuity at an interest rate of 3.5 percent? b) What is the
Show work:
3. a.) What is the time 0 value of a $300 perpetuity at an interest rate of 3.5 percent?
b) What is the value of the above assuming that it is a perpetuity due? That is, the first payment occurs at time 0 and continues forever.
4. You are evaluating a growing perpetuity investment from a large financial services firm. The investment promises an initial payment of $9,000 at the end of this year, and subsequent payments will grow at a rate of 3.6 percent annually. If you use an 8 percent discount rate for investments like this, what is the present value of this growing perpetuity?
5. You have just won the lottery and will receive $50,000 in one year. You will receive payments for 12 years, which will increase 2 percent per year. If the appropriate discount rate is 5 percent, what is the present value of your winnings?
7. Calculate the following:
d.)The monthly payments on a 20-year mortgage for $350,000. The interest rate is 4 percent per year.
e.) The total amount of interest paid over 20 years for the loan in (d).
f.) What is the balance on the loan in (d) in five years?
g.) Determine how much interest will be paid over the next 5 years on the loan in (d).
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