The present value of an infinite stream of dollar payments of $z (that starts next year)...

 

Transcribed Image Text:

The present value of an infinite stream of dollar payments of $z (that starts next year) is $z/i when the nominal interest rate, i, is constant. This formula gives the price of a consol-a bond paying a fixed nominal payment each year, forever. It is also a good approximation for the present discounted value of a stream of constant payments over long but not infinite periods, as long as i is constant. Suppose that i = 10%. Let $z = $200. The present value of the consol is $ 2000. (Enter your response as a whole number.) Find the expected present discounted value of each of the following bonds. (Hint: Use the formula from the chapter but remember to adjust for the first payment.) If i = 10%, the expected present discounted value of a bond that pays $200 per year over the next 10 years is $ (Round your response to the nearest whole number.) If i = 10%, the expected present discounted value of a bond that pays $200 per year over the next 20 years is $ (Round your response to the nearest whole number.) If i = 10%, the expected present discounted value of a bond that pays $200 per year over the next 30 years is $ (Round your response to the nearest whole number.) If i = 10%, the expected present discounted value of a bond that pays $200 per year over the next 50 years is $ (Round your response to the nearest whole number.) The present value of an infinite stream of dollar payments of $z (that starts next year) is $z/i when the nominal interest rate, i, is constant. This formula gives the price of a consol-a bond paying a fixed nominal payment each year, forever. It is also a good approximation for the present discounted value of a stream of constant payments over long but not infinite periods, as long as i is constant. Suppose that i = 10%. Let $z = $200. The present value of the consol is $ 2000. (Enter your response as a whole number.) Find the expected present discounted value of each of the following bonds. (Hint: Use the formula from the chapter but remember to adjust for the first payment.) If i = 10%, the expected present discounted value of a bond that pays $200 per year over the next 10 years is $ (Round your response to the nearest whole number.) If i = 10%, the expected present discounted value of a bond that pays $200 per year over the next 20 years is $ (Round your response to the nearest whole number.) If i = 10%, the expected present discounted value of a bond that pays $200 per year over the next 30 years is $ (Round your response to the nearest whole number.) If i = 10%, the expected present discounted value of a bond that pays $200 per year over the next 50 years is $ (Round your response to the nearest whole number.)

Answer rating: 100% (QA)

1 The expected present discounted value of a bond that pays 200 per year over the next 10 years is 1818 2 The expected present discounted value of a bond that pays 200 per year over the next 20 years ... View the full answer