Question
You are offered the opportunity to buy the following stream of cash flows: $1000 in years 1 through 10 and $2000 in years 11 through
You are offered the opportunity to buy the following stream of cash flows: $1000 in years 1 through 10 and $2000 in years 11 through 20.
Required:
(a) Assuming your effective annual rate of return is 10%, what is the most you would be willing to pay for this annuity?
(b) What is the most that you would be willing to pay if all the payments were shifted forward one year (so that you receive payments in years 0 through 19)?
Step by Step Solution
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There are 3 Steps involved in it
Step: 1
a To calculate the present value of the annuity we need to find the present v...
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Introduction to Corporate Finance What Companies Do
Authors: John Graham, Scott Smart
3rd edition
9781111532611, 1111222282, 1111532613, 978-1111222284
