A rich relative has bequeathed you a growing perpetuity. The first payment will occur in a year and will be $3,000. Each year after that, you will receive a payment on the anniversary of the last payment that is 4% larger than the last payment. This pattern of payments will go on forever. Assume that the interest rate is 15% per year. a. What is today's value of the bequest? b. What is the value of the bequest immediately after the first payment is made? XXX a. What is today's value of the bequest? Today's value of the bequest is $(Round to the nearest dollar.) b. What is the value of the bequest immediately after the first payment is made? The value of the bequest immediately after the first payment is made is (Round to the nearest dollar)

A rich relative has bequeathed you a growing perpetuity. The first payment will occur in a year and will be $3,000. Each year after that, you will receive a payment on the anniversary of the last payment that is 4% larger than the last payment. This pattern of payments will go on forever. Assume that the interest rate is 15% per year. a. What is today's value of the bequest? b. What is the value of the bequest immediately after the first payment is made? XXX a. What is today's value of the bequest? Today's value of the bequest is $(Round to the nearest dollar.) b. What is the value of the bequest immediately after the first payment is made? The value of the bequest immediately after the first payment is made is (Round to the nearest dollar)

Microeconomics A Contemporary Intro

10th Edition

ISBN:9781285635101

Author:MCEACHERN

Publisher:MCEACHERN

Chapter13: Capital, Interest, Entrepreneurship, And Corporate Finance

Section: Chapter Questions

Problem 13PAE

See similar textbooks

Similar questions

At an interest rate of 10%, what is the present value of an asset that produces $1,000 a year in perpetuity?
Find an expression for the present value of an annuity on which payments are 1 at the end of each 4-month period for 12 years assuming a rate of interest per 3-month period.
Suppose an individual places his money in a bank for a year then invests in apples for a year. Suppose the bank has an annual rate of 5%, compounded continuously. During the year in which the individual's money is in the bank, the apple grows in price from $1 to $1.25. Suppose its return doubles in the second year, when the individual's money is invested in the apples. He starts the first investment period with $100. How much money does he have after two years following the investment plan given above? Group of answer choices $105.1 $124.7 $154.4 $157.7
Assume the interest rate is 7%, What is the present value of $200: 1 year from now? 186.92 5 years from now? 142.60 10 years from now? 101.67
At what rate of interest will an investment double itself in 10 years?
What is the definition of internal rate of return (IRR)? If you expect the annual interest rates are much different in the next 10 years, would the IRR be the ideal measure? Why or why not?
Suppose you pay $971 for a 10=year Treasury bond that has a face value of $1,000 and a coupon rate of 5%. If you sell the bond one year later for $1,013, what is your one-year rate of return? (Give your answer as a percentage, round your answer to two decimal places; e.g., 4.37 for 4.37%)
What does the statement “interest rate 10%” signify? a The rate is effective per year. b The rate is nominal per year. c The rate is nominal per quarter. d The rate is effective per quarter.
Suppose you have an initial cash of $10000 and deposit it into a bank with a one year interest rate of 5%. What will be the value of your deposits 3 years from now? (If necessary, round to two decimal places). Suppose you have an initial cash of $5000 and deposit it into a bank with a one year interest rate of 7%. What will be the value of your deposits 4 years from now? (If necessary, round to two decimal places). Suppose you have an initial cash of $5000 and deposit it into a bank with a one year interest rate of 7%. What will be the value of your deposits 4 years from now? (If necessary, round to two decimal places).
Find that how much must be invested at the end of every year at 11% so that $15,000 will be accumulated at the end of five years?
What is the present value of $100 one year from now if the interest rate is 10%? What is the present value if the interest rate is 5%? Which one do you like: to have it today or wait for 1 year in the future. Why do you like it today/in 1 year?
The market for a product is expected to increase at an annual rate of 6%. First-year sales are estimated at $45,000, the horizon is 12 years, and the interest rate is 8%. What is the present value?