An asset with price S at time 0 pays some cashflows. The cashflows are worth C...
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An asset with price S at time 0 pays some cashflows. The cashflows are worth C₁ with probability p₁, C₂ with probability p2, and C3 with probability 1-P1-P2. These cashflows are paid every n months (perpetuity). Provide a formula for the asset price S by assuming that the (annualized) discount rate is r. An asset with price S at time 0 pays some cashflows. The cashflows are worth C₁ with probability p₁, C₂ with probability p2, and C3 with probability 1-P1-P2. These cashflows are paid every n months (perpetuity). Provide a formula for the asset price S by assuming that the (annualized) discount rate is r.
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We can use the formula for the present value of a perpetuity to calculate th... View the full answer
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