You can have a $1 million today or $50,000 for eternity (this right can be passed...
You can have a $1 million today or $50,000 for eternity (this right can be passed on to your heirs). At which interest rate would you prefer the $50,000 for eternity? (See HW7 on Chapter 8 material for relevant formulas.)
Select one:
a. 1.05
b. .05
c. .1
d. .15
e. .03
Homework Answers
Answer:
PV of annuity = Annual forever cash flow / Interest rate
$1000,000 = $50,000 / i
i = $50,000 / $1000,000
i = 0.05
Thus option b is right 0.05 i.e. 5%
Add Answer to:
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