# Louisiana State University, Shreveport FIN FIN 701 1.The fair rate is 8%. What is 100 per year, forever, worth now? (1250) =PV(0.08,1000,100,0) PMT = -100 r = .08 n = 1000 (you want to use a

Louisiana State University, Shreveport FIN FIN 701 1.The fair rate is 8%. What is 100 per year, forever, worth now? (1250) =PV(0.08,1000,100,0) PMT = -100 r = .08 n = 1000 (you want to use a

# 1.      The fair rate is 8%. What is 100 per year, forever, worth now? (1250)=PV(0.08,1000,100,0) PMT = -100

r = .08

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Louisiana State University, Shreveport FIN FIN 701 1.The fair rate is 8%. What is 100 per year, forever, worth now? (1250) =PV(0.08,1000,100,0) PMT = -100 r = .08 n = 1000 (you want to use a
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n = 1000 (you want to use a relatively large number since this is an infinite time period)

FV = 0 (since we don’t know the future value)

PMT/I=100/.08=1250

2.      What is the same 100 per year worth if it only lasts for 15 years? (855.948)

=PV(0.08,15,100,0)

3.      What if the 100 was the past cash flow and we expect it to grow at 5% forever? (3500)

. CF(0)*(1+g)=CF(1)

CF(1)/(I-g)=(100*1.05)/(.08-.05)=3500

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