You are offered an investment with the following conditions: the cost of the investment is $1,000 and it pays out a sum of X at the end of the first year. The payout grows at the rate of 10% per year for 11 years, after which the payouts cease. If your discount rate is 15%, calculate the smallest X that would entice you to purchase the asset.
You are offered an investment with the following conditions: the cost of the investment is $1,000 and it pays out a sum of X at the end of the first year. The payout grows at the rate of 10% per year for 11 years, after which the payouts cease. If your discount rate is 15%, calculate the smallest X that would entice you to purchase the asset.
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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Transcribed Image Text:You are offered an investment with
the following conditions: the cost
of the investment is $1,000 and it
pays out a sum of X at the end of
the first year. The payout grows
at the rate of 10% per year for 11
years, after which the payouts
cease. If your discount rate is
15%, calculate the smallest X
that would entice you to purchase
the asset.
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