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A rich relative has bequeathed you a growing perpetuity. The first payment will occur in a year and will be $1,000. Each year after that, you will receive a payment on the anniversary of the last payment that is 2% larger than the last payment. This pattern of payments will go on forever. Assume that the interest rate is 16% per year. a. What is today's value of the bequest? b. What is the value of the bequest immediately after the first payment is made? a. What is today's value of the bequest? Today's value of the bequest is $ www (Round to the nearest dollar.)

A rich relative has bequeathed you a growing perpetuity. The first payment will occur in a year and will be $1,000. Each year after that, you will receive a payment on the anniversary of the last payment that is 2% larger than the last payment. This pattern of payments will go on forever. Assume that the interest rate is 16% per year. a. What is today's value of the bequest? b. What is the value of the bequest immediately after the first payment is made? a. What is today's value of the bequest? Today's value of the bequest is $ www (Round to the nearest dollar.)

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A rich relative has bequeathed you a growing perpetuity. The first payment will occur in a year and will be $1,000. Each year after that, you will receive a payment on the anniversary of the last payment that is 2% larger than the last payment. This pattern of payments will go on forever. Assume that the interest rate is 16% per year. a. What is today's value of the bequest? b. What is the value of the bequest immediately after the first payment is made? *** a. What is today's value of the bequest? Today's value of the bequest is $. (Round to the nearest dollar.)
Transcribed Image Text:A rich relative has bequeathed you a growing perpetuity. The first payment will occur in a year and will be $1,000. Each year after that, you will receive a payment on the anniversary of the last payment that is 2% larger than the last payment. This pattern of payments will go on forever. Assume that the interest rate is 16% per year. a. What is today's value of the bequest? b. What is the value of the bequest immediately after the first payment is made? *** a. What is today's value of the bequest? Today's value of the bequest is $. (Round to the nearest dollar.)
You work for a pharmaceutical company that has developed a new drug. The patent on the drug will last 17 years. You expect that the drug's profits will be $4 million in its first year and that this amount will grow at a rate of 3% per year for the next 17 years. Once the patent expires, other pharmaceutical companies will be able to produce the same drug and competition will likely drive profits to zero. What is the present value of the new drug if the interest rate is 11% per year? The present value of the new drug is $ million. (Round to three decimal places.)
Transcribed Image Text:You work for a pharmaceutical company that has developed a new drug. The patent on the drug will last 17 years. You expect that the drug's profits will be $4 million in its first year and that this amount will grow at a rate of 3% per year for the next 17 years. Once the patent expires, other pharmaceutical companies will be able to produce the same drug and competition will likely drive profits to zero. What is the present value of the new drug if the interest rate is 11% per year? The present value of the new drug is $ million. (Round to three decimal places.)
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