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# Discount rate

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What is your personal discount rate or rate of preferences? I.e. how much would you pay for a promise of \$1000 to be received one year from now? Would you discount it by 10%, 5%, etc? and why ?

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Discount rate, by convention, is the current interest rate.

The current rate 2.63%, so that should be the person's discount rate.

Why is this? Because if someone's discount rate is not 2.63%, then there ...

Discount rate

\$2.19
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3. You are suppose to receive \$2,000 five years from now. At an interest rate of 6%, what is that \$2,000 worth today? Answer: =
4. What is the future value in 10 years of \$1,000 payments received at the beginning of each year for the next 10 years? Assume an interest rate of 5.625%. Answer: =
5. In order to help you through college, your parents just deposited \$25,000 into a back account paying 8% interest. Starting next year, you plan to withdraw equal amounts for the account at the end of each of the next four years. What is the most you can withdraw annually? Answer: =
6. What is the market value of a bond that will pay a total of forty semiannual coupons of \$50 each over the remainder of its life? Assume the bond has a \$1,000 face value and an 8% yield to maturity (YTM).
Price of the Bond
7. J&J, Inc. just issued a bond with a \$1,000 face value and a coupon rate of 7%. If the bond has a life of 30 years, pays annual coupons and the YTM is 6.8%, what will the bond sell for? =
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9. What would you pay for a share of ABC Corporation stock today if the next dividend will be \$2 per share, your required return on equity investments is 12%, and the stock is expected to be worth \$110 one year from now?
10. What would you pay today for a stock that is expected to make a \$1.50 dividend in one year if the expected dividend growth rate is 3% and you require a 16% return on your investment? Answer:
11. A project costs \$475 and has cash flows of \$100 for the first three years and \$75 in each of the project's last five years. What is the payback period of the project?
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