Calculate the present values of the cash streams

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Reference no: EM131625416

Calculate the present values of the following cash streams:

1) A growing perpetuity, with payments made once a year, with the first payment of $100 being made next year (at t=1).The payments grow at an annualized rate of 1% each year. The effective annualized discount rate is 2% (i.e., r = .02).

2) A growing annuity, with payments made once a year, with the first payment of $100 being made next year (at t=1) and the last payment being made after ten years (at t = 10). The payments grow at an annualized rate of 1% each year. The effective annualized discount rate is 2% (i.e., r = .02)

3) A growing annuity, with payments made twice a year, with the first payment of $50 being made half a year from now and the last payment being made after ten years (for a total of 20 payments). The payments grow at an annualized rate of 1% each year (or an six-month rate of r = (1.01).5 – 1 = .004988 – i.e., .4988 percent – per six-month period). The effective annual discount rate is 2% (i.e., r = .02).

Reference no: EM131625416

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