What is the npv of infinite stream of loans

Assignment Help Finance Basics
Reference no: EM133120429

Suppose you have the option to extend a loan to a friend this year for $1000 in exchange for repayment next year of $1100 (the $1100 is the principal plus interest). Every year, however, the friend has the option to borrow $1000 again in exchange for $1100 repayment one year later, i.e. the friend can roll over the debt. You know this friend well and know that he will always roll over the debt and will never default.

a. Assume neither of you will ever die. What is the NPV of this infinite stream of loans if you have a discount rate of 8%?

b. Now assume your friend today is t=0 and your friend will die immediately after paying back his loan at t=60. What is the NPV of this finite stream of loans if you have a discount rate of 8%?

Reference no: EM133120429

Questions Cloud

Explain in detail what is liquidity : Explain in detail what is liquidity and how does the OCC's absolute guarantee, together with the contracts standardization, create liquidity in the market.
Explore the general economic, political and workplace issues : Explore the general economic, political and workplace issues, innovations and opportunities of the tourism industry - critically and apply judgement
What is the maximum price of spendex corporation : Spendex Corporation paid a dividend of $1.29 per share today. Dividends are expected to grow at 11.00% per year for the next 3 years, then at 9.00% per year in
Compare different sized investments : The coefficient of variation is calculated to help correlate the standard deviation and the relative expected value of an investment, which makes it easier to c
What is the npv of infinite stream of loans : a. Assume neither of you will ever die. What is the NPV of this infinite stream of loans if you have a discount rate of 8%?
What is the present value : What is the present value today [year {i} ofthese cash flows? [For this problem, feel free to use Excel, or you can do this by hand using annuity and perpetuity
What is the dollar value increase : Go to the FDIC website at www.fdic.gov and find the total amount of unused commitments and letters of credit and the notional value of interest rate swaps of FD
Correlation of the returns on the corporate bond : You have $10,000 to invest in a combination of a risk-free asset (), an S&P 500 index fund (S), and a corporate bond fund (B) with the following properties:
Standard deviation of excess market returns : You are analyzing an investment opportunity in Tesla (TSLA). You find that TSLA currently has a market beta of 2.01, and also find that TSLA has (i) a total ret

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd