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# Assessing Future Financial Needs Your Discussion Question response should be both grammatically and mechanically correct and formatted in the same fashion as the question itself. If there is a Part A,...

Assessing Future Financial Needs

Your Discussion Question response should be both grammatically and mechanically correct and formatted in the same fashion as the question itself. If there is a Part A, your response should identify a Part A, etc. In addition, you must appropriately cite all resources used in your responses and document in a bibliography using APA style.
Calculate the following:
1. Calculate the present value (PV) of a cash inflow of \$500 in one year and a cash inflow of \$1,000 in five years, assuming a discount rate of 15 percent.
2. Calculate the present value (PV) of an annuity stream of five annual cash flows of \$1,200, with the first cash flow received in one year, assuming a discount rate of 10 percent.
3. What is the present value of a perpetual stream of annual cash flows, with the first cash flow of \$100 to be received in one year and with all subsequent cash flows growing at a rate of 3 percent, assuming a discount rate of 8 percent?
4. Consider two bonds, Bond C and Bond D, both with a yield to maturity of 10 percent and with 5 years to maturity. These are standard bonds with semiannual coupon payments. Bond C has a coupon rate of 10 percent (with semiannual coupon payments); Bond D does not pay any coupons (i.e., it a zero-coupon bond). What is the price of each bond?
5. What is the fair value today of a common share with expected annual dividends of \$1.00, \$1.05, and \$1.10 in each of the next three years and an expected share price of \$20 in three years, assuming a required return of 9 percent?
Grading RubricPlease refer to the rubric on the following page for the grading criteria for this assignment.

Answered Same Day Jun 12, 2021

## Solution

Suvrat answered on Jun 19 2021
1. Present value Formula = Cash inflow/
N = Number of years
PV of \$500 in one year = 500/ = 500/1.15 = \$434.78
PV of \$1000 in 5 years = 1000/ = 1000/2.011 = \$497.26
2. Present Value of Annuity is calculated as below:
P = PMT x ((1 – (1 / (1 + r) ^ -n)) / r)
PMT = Cash Flow each yea
R = Discount rate
N = No. of years.
For given question
PV = 1200 * ((1 – (1/ (1 + .10) ^ -5)) / .10)
= 1200 * 3.79
= \$4,548
3. Present value of perpetual annuity with growth is calculated as...
SOLUTION.PDF