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5. The present value of a perpetuity that will pay out $10 K per year forever is $250 K. Assuming that the interest rate is constant, find the rate.

5. The present value of a perpetuity that will pay out $10 K per year forever is $250 K. Assuming that the interest rate is constant, find the rate.

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)
Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)
7th Edition
ISBN:9780357033609
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Chapter2: Using Financial Statements And Budgets
Section: Chapter Questions
Problem 6FPE
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Question 5 if the picture please. 

Tools Wind Exercises 1. You decide to give SCU an endowment that will pay out $50 K per year forever, with a continuously compounded annual increase of 3%. Assuming that you can lock in an interest rate of 5%, figure out how much this endownment would cost. What is the total value of this income stream? 2. Suppose Aunt Grace wanted to give annual increases of $2,000 per year. How would this change the computations above? Give values for the amount Aunt Grace would have to pay to fund the income stream for 25 years, 50 years, 100 years, 200 years, and forever. (Hint: You need only integrate by parts onee.) 3. You take all the information about Aunt Grace's gift to your not-quite-so- wealthy Aunt Margaret. In addition to the $1 M already deposited there by Aunt Grace, how much would Aunt Margaret have to add to the fund to enable + 09 ( 7 forever? 4. Let's revisit the income stream from your endowment to SCU in the first prob- lem, which is S50 K per year with 3% continuously compounded annual increase. Instead of the 5% investment rate we used in Problem 1, compute the present value of this income stream (lasting forever) assming a constant interest rate r. What is the present value of the income stream if r = 0.02. For which values of r is the present value finite? 5. The present value of a perpetuity that will pay out $10 K per vear forever is $250 K. Assuming that the interest rate is constant, find the rate. PC MacBook Air
Transcribed Image Text:Tools Wind Exercises 1. You decide to give SCU an endowment that will pay out $50 K per year forever, with a continuously compounded annual increase of 3%. Assuming that you can lock in an interest rate of 5%, figure out how much this endownment would cost. What is the total value of this income stream? 2. Suppose Aunt Grace wanted to give annual increases of $2,000 per year. How would this change the computations above? Give values for the amount Aunt Grace would have to pay to fund the income stream for 25 years, 50 years, 100 years, 200 years, and forever. (Hint: You need only integrate by parts onee.) 3. You take all the information about Aunt Grace's gift to your not-quite-so- wealthy Aunt Margaret. In addition to the $1 M already deposited there by Aunt Grace, how much would Aunt Margaret have to add to the fund to enable + 09 ( 7 forever? 4. Let's revisit the income stream from your endowment to SCU in the first prob- lem, which is S50 K per year with 3% continuously compounded annual increase. Instead of the 5% investment rate we used in Problem 1, compute the present value of this income stream (lasting forever) assming a constant interest rate r. What is the present value of the income stream if r = 0.02. For which values of r is the present value finite? 5. The present value of a perpetuity that will pay out $10 K per vear forever is $250 K. Assuming that the interest rate is constant, find the rate. PC MacBook Air
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