Calculate the following (assume all payments are made at the end of the year). a. What is

Question:

Calculate the following (assume all payments are made at the end of the year).

a. What is the value today of a $10,000 payment made in perpetuity assuming a 8% discount rate?

b. Assume the same perpetuity as above but the payments will not begin for another five years. What is the present value of such a perpetuity?

c. What is the present value of a 5 year annuity which pays $10,000 per year and with an interest rate of 8%?

d. You are told you will receive the following cash payments at the end of the next three years:

Year 1: ......$10,000

Year 2: ......$25,000

Year 3: ......$50,000

Assuming a discount rate of 12%, what is present value of all payments?

Annuity
An annuity is a series of equal payment made at equal intervals during a period of time. In other words annuity is a contract between insurer and insurance company in which insurer make a lump-sum payment or a series of payment and, in return,... Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal... Perpetuity
Perpetuity refers to payments that are made without an end or maturity date. A perpetuity is classified as an annuity, which is something that earns a dividend or receives a payment at a regularly scheduled interval, generally yearly. So, how...