Maximum price you would pay for this investment?
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An investment promises to pay $6,000 at the end of each year for the next five years and $4,000 at the end of each year for years 6 through 10.
a. If you require a 12 percent rate of return on an investment of this sort, what is the maximum amount you would pay for this investment?
b. Assuming that the payments are received at the beginning of each year, what is the maximum amount you would pay for this investment, given a 12 percent required rate of return?
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Solution Summary
The solution is attached and shows you how to find these amounts and explains how the timing of the return (beginning or end of the period) impacts the maximum amount you would pay.
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