QUESTION 42 1. Aunt Clara has promised to leave you $200 a year starting next ye

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QUESTION 42 1. Aunt Clara has promised to leave you $200 a year starting next year and have it increase at 6% a year thereafter. The payments are expected to go on indefinitely. How much has Aunt Clara left you if your opportunity cost is 10 percent?
$2,500
$3,000
$4,000
$5,000
$6,000 1 points QUESTION 43 1. In the above question, what is the present value of the cash flows if the first payment will be made in five years?
$2,667
$3,023
$3,415
$4,212
$4,734
QUESTION 42 1. Aunt Clara has promised to leave you $200 a year starting next year and have it increase at 6% a year thereafter. The payments are expected to go on indefinitely. How much has Aunt Clara left you if your opportunity cost is 10 percent?
$2,500
$3,000
$4,000
$5,000
$6,000 1 points QUESTION 43 1. In the above question, what is the present value of the cash flows if the first payment will be made in five years?
$2,667
$3,023
$3,415
$4,212
$4,734
QUESTION 42 1. Aunt Clara has promised to leave you $200 a year starting next year and have it increase at 6% a year thereafter. The payments are expected to go on indefinitely. How much has Aunt Clara left you if your opportunity cost is 10 percent?
$2,500
$3,000
$4,000
$5,000
$6,000 1 points QUESTION 43 1. In the above question, what is the present value of the cash flows if the first payment will be made in five years?
$2,667
$3,023
$3,415
$4,212
$4,734

Explanation / Answer

1. Amount left for next year / (opportunity cost - growth rate )

= $200 / (10% - 6% )

= $200 / 4%

= $5000

2. First payment is made in 5 years. For present value present value at 4th year has to be discounted with present value factor of 4th year.

Present value at 4th year will be $5000

Present value now = $5000 * PVF (10% , 4 year)

= $5000 * 0.683

= $3415

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