Question
Suppose a farmer requires a pre-tax rate of return of 15%, has a marginal tax rate of 25%, assigns a 2% risk premium to
Suppose a farmer requires a pre-tax rate of return of 15%, has a marginal tax rate of 25%, assigns a 2% risk premium to investments, and expects inflation to be 3% per year over the next 10 years. This farmer calculates the NPV of his new investment to be -$50,000 based on an investment life of 10 years. (i) Calculate the real discount rate. a. 9.47% c. 7.74% Enter Response Here: b. 12.75% Enter Response Here: d. None of the answers are correct (ii) Calculate the real annuity equivalent. a. $9,492 b. $5,298 c. $7,953 d. None of the answers are correct
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Financial Markets And Institutions
Authors: Frederic S. Mishkin, Stanley G. Eakins
7th Edition
013213683X, 978-0132136839
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