Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Question
Chapter 6, Problem 78QP
Summary Introduction
To compute: The present value of growing perpetuity equation
Introduction:
The future sum of money that worth today is described by the present value. The perpetuity is the
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4. The present value of a growing perpetuity, with cash flow C1 occurring one year from now, is given by: [C1/(r - g)], where r > g.
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Chapter 6 Solutions
Fundamentals of Corporate Finance
Ch. 6.1 - Prob. 6.1ACQCh. 6.1 - Prob. 6.1BCQCh. 6.1 - Unless we are explicitly told otherwise, what do...Ch. 6.2 - In general, what is the present value of an...Ch. 6.2 - In general, what is the present value of a...Ch. 6.3 - If an interest rate is given as 12 percent...Ch. 6.3 - What is an APR? What is an EAR? Are they the same...Ch. 6.3 - Prob. 6.3CCQCh. 6.3 - What does continuous compounding mean?Ch. 6.4 - What is a pure discount loan? An interest-only...
Ch. 6.4 - What does it mean to amortize a loan?Ch. 6.4 - Prob. 6.4CCQCh. 6 - Two years ago, you opened an investment account...Ch. 6 - A stream of equal payments that occur at the...Ch. 6 - Your credit card charges interest of 1.2 percent...Ch. 6 - What type of loan is repaid in a single lump sum?Ch. 6 - Annuity Factors [LO1] There are four pieces to an...Ch. 6 - Prob. 2CRCTCh. 6 - Prob. 3CRCTCh. 6 - Present Value [LO1] What do you think about the...Ch. 6 - Prob. 5CRCTCh. 6 - Prob. 6CRCTCh. 6 - APR and EAR [LO4] Should lending laws be changed...Ch. 6 - Prob. 8CRCTCh. 6 - Prob. 9CRCTCh. 6 - Prob. 10CRCTCh. 6 - Prob. 11CRCTCh. 6 - Prob. 12CRCTCh. 6 - Prob. 1QPCh. 6 - Prob. 2QPCh. 6 - Prob. 3QPCh. 6 - Prob. 4QPCh. 6 - Calculating Annuity Cash Flows [LO1] If you put up...Ch. 6 - Calculating Annuity Values [LO1] Your company will...Ch. 6 - Calculating Annuity Values [LO1] If you deposit...Ch. 6 - Calculating Annuity Values [LO1] You want to have...Ch. 6 - Prob. 9QPCh. 6 - Calculating Perpetuity Values [LO1] The Maybe Pay...Ch. 6 - Prob. 11QPCh. 6 - Prob. 12QPCh. 6 - Calculating APR [LO4] Find the APR, or stated...Ch. 6 - Calculating EAR [LO4] First National Bank charges...Ch. 6 - Prob. 15QPCh. 6 - Prob. 16QPCh. 6 - Prob. 17QPCh. 6 - Calculating Present Values [LO1] An investment...Ch. 6 - EAR versus APR [LO4] Big Doms Pawn Shop charges an...Ch. 6 - Prob. 20QPCh. 6 - Calculating Number of Periods [LO3] One of your...Ch. 6 - Calculating EAR [LO4] Friendlys Quick Loans, Inc.,...Ch. 6 - Prob. 23QPCh. 6 - Calculating Annuity Future Values [LO1] You are...Ch. 6 - Calculating Annuity Future Values [LO1] In the...Ch. 6 - Prob. 26QPCh. 6 - Prob. 27QPCh. 6 - Prob. 28QPCh. 6 - Simple Interest versus Compound Interest [LO4]...Ch. 6 - Prob. 30QPCh. 6 - Prob. 31QPCh. 6 - Prob. 32QPCh. 6 - Calculating Future Values [LO1] You have an...Ch. 6 - Calculating Annuity Payments [LO1] You want to be...Ch. 6 - Prob. 35QPCh. 6 - Prob. 36QPCh. 6 - Prob. 37QPCh. 6 - Growing Annuity [LO1] Your job pays you only once...Ch. 6 - Prob. 39QPCh. 6 - Calculating the Number of Payments [LO2] Youre...Ch. 6 - Prob. 41QPCh. 6 - Prob. 42QPCh. 6 - Prob. 43QPCh. 6 - Prob. 44QPCh. 6 - Prob. 45QPCh. 6 - Prob. 46QPCh. 6 - Prob. 47QPCh. 6 - Prob. 48QPCh. 6 - Prob. 49QPCh. 6 - Calculating Present Value of a Perpetuity [LO1]...Ch. 6 - Prob. 51QPCh. 6 - Prob. 52QPCh. 6 - Calculating Annuities Due [LO1] Suppose you are...Ch. 6 - Prob. 54QPCh. 6 - Prob. 55QPCh. 6 - Prob. 56QPCh. 6 - Prob. 57QPCh. 6 - Prob. 58QPCh. 6 - Prob. 59QPCh. 6 - Prob. 60QPCh. 6 - Calculating Annuity Values [LO1] You are serving...Ch. 6 - Prob. 62QPCh. 6 - Calculating EAR with Points [LO4] The interest...Ch. 6 - Prob. 64QPCh. 6 - Prob. 65QPCh. 6 - Prob. 66QPCh. 6 - Prob. 67QPCh. 6 - Calculating Annuity Payments [LO1] This is a...Ch. 6 - Prob. 69QPCh. 6 - Prob. 70QPCh. 6 - Prob. 71QPCh. 6 - Calculating Interest Rates [LO4] A financial...Ch. 6 - Prob. 73QPCh. 6 - Prob. 74QPCh. 6 - Ordinary Annuities and Annuities Due [LO1] As...Ch. 6 - Calculating Growing Annuities [LO1] You have 40...Ch. 6 - Prob. 77QPCh. 6 - Prob. 78QPCh. 6 - Prob. 79QPCh. 6 - Prob. 80QPCh. 6 - Prob. 1MCh. 6 - Prob. 2MCh. 6 - Prob. 3MCh. 6 - Prob. 4MCh. 6 - Prob. 5MCh. 6 - Prob. 6M
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- The present value of a perpetuity is equal to the payment on the annuity, PMT, divided bythe interest rate, I : PV = PMT/I. What is the future value of a perpetuity of PMT dollars peryear? (Hint: The answer is infinity, but explain why.)arrow_forward1. How is the future value related to the present value of a single sum? 2. How is the present value of a single sum related to the present value of an annuity? 3. Why does money have a time value? 4. Does inflation have anything to do with making a dollar today worth more than a dollar tomorrow? 5. What is a deferred annuity?arrow_forwardIncreasing the number of periods will increase all of the following except: Select one: A. The present value of an annuity B. The present value of $1 C. The future value of $1 D. The future value of an annuityarrow_forward
- 4.13 Calculating Annuity Present Value An investment offers $5,200 per year for 15 years, with the first payment occurring one year from now. If the required return is 7 percent, what is the value of the investment? What would the value be if the payments occurred for 40 years? For 75 years? Forever?arrow_forwardQuestion 14.05 Consider two annuities that have the same yield and make annual payments. The first annuity is a level n-year annuity-due, and its Macaulay duration is 3. The second annuity is a level n-year annuity-immediate, and its Macaulay duration is X. E 4.50 Calculate X. A 3.00 B 3.25 C 3.50 D 4.00arrow_forwardwhat would happen if interest rate is doubled in ordinary annuity?arrow_forward
- 10. Perpetuities Perpetuities are also called annuities with an extended or unlimited life. Based on your understanding of perpetuities, answer the following questions. Which of the following are characteristics of a perpetuity? Check all that apply. The present value of a perpetuity is calculated by dividing the amount of the payment by the investor's opportunity interest rate. A perpetuity is a series of regularly timed, equal cash flows that is assumed to continue indefinitely into the future. ☐ A perpetuity continues for a fixed time period. In a perpetuity, returns-in the form of a series of identical cash flows-are earned. Your grandfather wants to establish a scholarship in his father's name at a local university and has stipulated that you will administer it. As you've committed to fund a $15,000 scholarship every year beginning one year from tomorrow, you'll want to set aside the money for the scholarship immediately. At tomorrow's meeting with your grandfather and the bank's…arrow_forwardQ.What is the present value of a perpetuity that will pay $450 per year with the first payment occurring at year eleven if the appropriate interest rate is 8.5%?arrow_forward3.12 Suppose the spot rates of interest for investment horizons of 1 to 5 years are 4%, and for 6 to 10 years are 5%. (c) Compute the future value of the annuity-immediate at the end of year 10, assuming future payments earn the forward rates of interest, using equation (3.18).arrow_forward
- Future value for an ordinary annuity and annuity due will be exactly the same if the investment horizon is exactly one year. Group of answer choices True Falsearrow_forward5. Present value of annuities and annuity payments The present value of an annuity is the sum of the discounted value of all future cash flows. You have the opportunity to invest in several annuities. Which of the following 10-year annuities has the greatest present value (PV)? Assume that all annuities earn the same positive interest rate. An annuity that pays $500 at the end of every six months An annuity that pays $1,000 at the beginning of each year An annuity that pays $1,000 at the end of each year An annuity that pays $500 at the beginning of every six months You bought an annuity selling at $17,390.08 today that promises to make equal payments at the beginning of each year for the next eight years (N). If the annuity’s appropriate interest rate (I) remains at 5.00% during this time, then the value of the annual annuity payment (PMT) is . You just won the lottery. Congratulations! The jackpot is $60,000,000, paid in eight…arrow_forward5. Present value of annuities and annuity payments The present value of an annuity is the sum of the discounted value of all future cash flows. You have the opportunity to invest in several annuities. Which of the following 10-year annuities has the greatest present value (PV)? Assume that all annuities earn the same positive interest rate. An annuity that pays $500 at the beginning of every six months An annuity that pays $1,000 at the end of each year An annuity that pays $500 at the end of every six months An annuity that pays $1,000 at the beginning of each year You bought an annuity selling at $2,867.74 today that promises to make equal payments at the beginning of each year for the next twelve years (N). If the annuity's appropriate interest rate (1) remains at 9.50% during this time, then the value of the annual annuity payment (PMT) is $375.00 You just won the lottery. Congratulations! The jackpot is $35,000,000, paid in twelve equal annual payments. The first payment on the…arrow_forward
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