Page 1 of 1
Suppose that in their divorce settlement, Mr. Billy offers Mrs. Melly to receive $1 million at the end of each year for
Posted: Sun Jun 05, 2022 12:05 pm
by answerhappygod
- Suppose That In Their Divorce Settlement Mr Billy Offers Mrs Melly To Receive 1 Million At The End Of Each Year For 1 (35.84 KiB) Viewed 70 times
- Suppose That In Their Divorce Settlement Mr Billy Offers Mrs Melly To Receive 1 Million At The End Of Each Year For 2 (28.51 KiB) Viewed 70 times
Suppose that in their divorce settlement, Mr. Billy offers Mrs. Melly to receive $1 million at the end of each year for a period of 5 years, but she instead demands $3 million now. 1. What's the Formula of the present value of a stream (of payments)? (From your textbook) 2. Using the formula from
question 1, determine the present value of a stream of future annual payments of $1 million over a period of 5 years. Assume the discount rate is 8%. 3. Based on your answer from
question 2, was the decision of Mrs. Melly to receive $3 million now a good decision? Explain your answer!
Present value of a stream of future values FV₂ PV = FV₁ (1 + i)¹ + (1 + i)² or, n PV = t=1 ++ FVt (1 + i)t FVn (1 + i)n