3. TEXTBOOK CHAPTER 3 - EXERCISE 6 - CASH FLOWS Assume we are at period 0. Let r be the periodic interest rate and let x = 1/(1+r) be the 1 period discount factor. (a) Let Sn be the present value of the following cash flow: 1 3 32 in 1 2 Derive the present value Sn in terms of x and n. (b) Derive the present value So of the following (infinte) cash flow in terms of r and/or x: 3 n + 1 1 O Suggestion: Calculate the present value Sn for a finite stream, and then take the limit as n = 0. 3. TEXTBOOK CHAPTER 3 - EXERCISE 6 - CASH FLOWS Assume we are at period 0. Let r be the periodic interest rate and let x = 1/(1+r) be the 1 period discount factor. (a) Let Sn be the present value of the following cash flow: 1 3 32 in 1 2 Derive the present value Sn in terms of x and n. (b) Derive the present value So of the following (infinte) cash flow in terms of r and/or x: 3 n + 1 1 O Suggestion: Calculate the present value Sn for a finite stream, and then take the limit as n = 0