2. (2 points) Calculate the difference between the present value of $300 per year cash payments...

 

Transcribed Image Text:

2. (2 points) Calculate the difference between the present value of $300 per year cash payments for the next 40 years and the present value of $300 per year cash payments in perpetuity. Assume in either case, the first payment occurs one year from today and that the appropriate discount rate is 10%/year. The difference in the present value of these two streams of future cash payments that you calculated equals the present value of cash payments over what period? (Hint: the difference between the PV of cash payments over the next 10 years and the PV of an equal level of cash payments over the next 8 years is the present value of the cash payments in years 9 and 10.) What did you learn from this analysis? 2. (2 points) Calculate the difference between the present value of $300 per year cash payments for the next 40 years and the present value of $300 per year cash payments in perpetuity. Assume in either case, the first payment occurs one year from today and that the appropriate discount rate is 10%/year. The difference in the present value of these two streams of future cash payments that you calculated equals the present value of cash payments over what period? (Hint: the difference between the PV of cash payments over the next 10 years and the PV of an equal level of cash payments over the next 8 years is the present value of the cash payments in years 9 and 10.) What did you learn from this analysis?

Answer rating: 100% (QA)

To calculate the present value of 300 per year cash payments for the next 40 years we can use the fo... View the full answer