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Someone has offered to buy you a financial instrument that has the following cash flows: You will receive $100 right now and you are going
Someone has offered to buy you a financial instrument that has the following cash flows: You will receive $100 right now and you are going to continue to receive this payment every year forever. At the end of year 6 , you will receive $500, and you will continue to receive $500 at the end of each year till year 9 (i.e., in total you will receive 4 payments from the end of year 6 to the end of year 9 ). You will receive another payment of $100 at the end of year 11 , and the payment will grow at a rate of 6% forever. Suppose that the discount rate is 10%. The price that you have been asked to pay for this financial instrument is $3000. Is this a good price
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