Page 4 - Test

5.
0 $1M $1M $1M

th
th
th
th
0 year 5 year 10 year 15 year

5
Effective 5-year rate = (1 + 8%) – 1

PV = Perpetuities with period of 5 years = $1M___
5
(1 + 8%) – 1

PV = $2.13 million

6.

0 1000 1000*(1-2%) 1000*(1-2%) 2

nd
st
rd
th
0 year 1 year 2 year 3 year

PV = C / (r-g)

C = 1000, r = 5%, g = -2%

PV = 1000 / (5% + 2%)

PV = $14,286