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# [Solved] Assignment 219142

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Question
Problem Set #3 FIN 7000
Problem 1: Let the effective annual rate be 5 percent (i.e., r = .05) for all maturities.a. Calculate the present value of a perpetuity that makes annual payments of \$1,000,000 every year forever, with the next payment being made exactly one year from now.b. Calculate the present value of a perpetuity that makes annual payments of \$1,000,000 every year forever, with the next payment being made exactly ten years from now.c. Calculate the present value of an annuity that makes annual payments of \$1,000,000 every year for 9 years, with the next payment being made exactly one year from now.d. Calculate the present value of a perpetuity that makes a payment of \$1,000,000 every 6 months, with the next payment being made in exactly 6 months from now. Hint: Use the standard perpetuity formula but let the “period” be six months instead of a year and use the effective 6-month rate implied by the annual effective rate of 5 percent.e. Calculate the present value of an annuity that makes a payment of \$1,000,000 every other year for 10 payments with the first payment being made exactly two years from now. Hint: Use the standard annuity formula, but let the “period” be two years (rather than just one year) and use the effective two-year rate implied by the annual effective rate of 5 percent.f. Calculate the present value of an annuity that makes a payment of \$1,000,000 every other year for 10 payments with the first payment being made exactly one year from now. Hint: How is the present value of this annuity related to the annuity value in e above?Problem 2: Let the interest rate be 10 percent (r = .10) at all maturities.