Reference no: EM132795297
1. Calculate the present values of the following payoffs & assets, given the interest rate 8%.
a. Lump-sum payment of $250 expected one year from now.
b. Lump-sum payment of $400 expected three year from now.
c. An annuity that pays $200 a year for 5 years (the first payment arrives one year from now).
d. A perpetuity that pays $200 a year (the first payment arrives one year from now).
e. A bond that pays coupon payments $100 in February 2022, February 2023, and February 2024, plus the face value/principal of $1,000 in February 2025. Calculate its present value today.
f. A house that generates $3,000 a year rental income and is expected to be sold for $200,000 ten years from now.
2. A bridge would cost $210 million to build (this cost must be incurred now). After it's built, starting next year, the bridge will last for 60 years. Each year when the bridge is in use, we expect it to generate $5 million worth of benefits and cost $1 million per year to perform maintenance. The interest rate is 2%. Should we build this bridge? Show your calculations and explain your decision (to build or not to build).