ou have a growing payment stream that you want to be able to fully fund by making a single deposit today. The first payment occurs immediately and is $10,000. Each succeeding payment will be 5% higher than the prior payment, and there will be 13 total payments, each one year apart. What is the amount you have to deposit today to fully fund this payment stream if the discount rate is 5% per year? Question content area bottom Part 1 The deposit you need to make is $enter your response here. (Round to the nearest dollar.
ou have a growing payment stream that you want to be able to fully fund by making a single deposit today. The first payment occurs immediately and is $10,000. Each succeeding payment will be 5% higher than the prior payment, and there will be 13 total payments, each one year apart. What is the amount you have to deposit today to fully fund this payment stream if the discount rate is 5% per year? Question content area bottom Part 1 The deposit you need to make is $enter your response here. (Round to the nearest dollar.
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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Question
You have a growing payment stream that you want to be able to fully fund by making a single deposit today. The first payment occurs immediately and is
$10,000.
Each succeeding payment will be
5%
higher than the prior payment, and there will be
13
total payments, each one year apart. What is the amount you have to deposit today to fully fund this payment stream if the discount rate is
5%
per year? Question content area bottom
Part 1
The deposit you need to make is
$enter your response here.
(Round to the nearest dollar.)Expert Solution
Step 1: Introduction to time value of money
The concept of time value of money will be used here. As per the concept of time value of money the worth of money changes with passage of time. This is because money has the power to earn interest. The case mentioned here is the case of a growing annuity. Annuity is a stream of periodic cash flows. Also the payment starts immediately and hence this is a case of annuity due. We have to find the present value of this annuity due.
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