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3 years ago

The fair rate is 8%. What is 100 per year, forever, worth now?

Business

2 answers:

iVinArrow [24]3 years ago

7 0

Answer: Please refer to the explanation section

Explanation:

Investment = 100

Interest rate = r = 8%

1. Value of a Perpetual (forever) investment

Present Value = Investment/r = 100/0.08 = 1250

Present Value = $ 1250

2. Present Value with a period of 15 years

Present Value = Investment/(1+r)^n

Present Value = 100/(1+0.08)^15 = 31.524170497

Present Value = $ 31.52

3. Present Value of a Perpetual (forever) investment with Growth rate of 5%

Present Value = Investment/r = 100/0.08 – 0.05 = 3333.333333

Present Value = $ 3333.33

4. Future Value if we get 100 at the end of the year

Future Value = investment(1+r) = 100(1+0.08) = 108

Future Value = $ 108

5. Future Value if we get 100 at the end of 10 years

Future Value = investment(1+r) = 100(1+0.08)^10 = 251.524170497

Future Value = $ 251.52

6. Future Value if 100 is reinvested every year for 10 years

Future Value = Payment x [(1+r)^n – 1)/ r]

Future Value = 100 x [(1+0.08)^10 – 1)/ 0.08)

Future Value = 1448.6562466 = $ 1448.66

777dan777 [17]3 years ago

5 0

Answer:

1. $1,250

2. $855.95

3. $3,333.33

4. $92.59

5. $46.32

6. $671.01

Explanation:

$100 per year forever

Constant Cash flow every year forever is actually a perpetuity its present value is

PV of Perpetuity = Cash flow / rate of return

PV of $100 Perpetuity = $100 / 0.08 = $1,250

$100 per year for 15 years

Constant Cash flow every year for specific time period is actually a Annuity its present value is

PV of annuity = P + P [ ( 1 - ( 1 + r )^-n ) / r ] = $100 + $100 [ ( 1 - ( 1 + 0.08 )^-15 ) / 0.08 ] = $855.95

$100 per year grow at 5% forever

It is a growing perpetuity and its present value will be calculated as follow

Present value of growing perpetuity = Cash flow / Rate of return - growth rate

Present value of growing perpetuity = $100 / 0.08 - 0.05 = $3,333.33

$100 once at the end of this year

Present value = P ( 1 + r)^-n = $100 ( 1 + 0.08 )^-1 = $92.59

$100 once after 10 years

Present value = P ( 1 + r)^-n = $100 ( 1 + 0.08 )^-10 = $46.32

$100 each year for 10 years @ 8%

PV of annuity = P + P [ ( 1 - ( 1 + r )^-n ) / r ] = $100 + $100 [ ( 1 - ( 1 + 0.08 )^-10 ) / 0.08 ] = $671.01

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1 year ago

On January 1 of the current year, the Barton Corporation issued 12% bonds with a face value of $88,000. The bonds are sold for $

gogolik [260]

Answer:

b.$11,088

Explanation:

The computation of the interest expense is shown below

= Cash interest + discount amortized

= ($88,000 × 12%) + ($88,000 - $85,360) ÷ 5 years

= $10,560 + $528

= $11,088

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3 years ago

Researchers usually start their investigation by examining some of the rich variety of low-cost and readily available ________ d

Anna [14]

Answer:

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Explanation:

Secondary data is data collected from other researches. In this age, there is a lot of easily accessible data made available freely or at low cost. Examining them first not only help researchers find needed data cheaply, but also give them ideas about what they could find out from those data (serendipitous discovery).

Primary data is data collected from first-handed sources by the the researchers themselves by methods including surveys, interviews, direct observation, etc. It is costly to obtain so researchers only come to that when they can't find good secondary data for their purposes.

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4 years ago

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3 years ago

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sleet_krkn [62]

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