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