What is the present value of such savings program

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1) Assume that your savings account will return a constant 10%. You will deposit $1000 today and plan to perpetually increase the size of the deposit by 5% each year, forever. Immediately after making a deposit 10 years from now, how much will be in your savings account?

2) Consider an asset that will pay you $10 today and every year for the next 100 years. Assume a constant cost of capital of 10%. Suppose you receive the asset today (right before the first payment), but will only pay for it 10 years later. That is, you will pay the appropriate future value of this asset 10 years from now. How much would you be willing to pay for the asset in 10 years?

3) Assume that your savings account will return a constant 10%. You will deposit $1000 today and plan to increase the size of the deposit by 5% each year. Thus the deposit in one year will be $1050. Immediately after making the final deposit 10 years from now, how much will be in your savings account?

4) Assume that your savings account will return a constant 10% forever. You will deposit $1000 today. Suppose you and your descendants plan to continue to increase the size of the deposit by 10% each year forever. What is the present value of such a savings program?

Reference no: EM131192458

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