Annual Payments and Present Value
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1. If a store is bought for $100,000 and the terms are 25% down, the balance of $75,000 to be paid off over 10 years at a 10% rate of interest on the unpaid balance, what are the 10 equal annual payments?
2. A lottery winner decides to receive $10,000 every year forever, starting one year from today. Suppose the prize is growing at a constant rate of 2% every year. In other words, the winner is going to receive $10,000 one year from today, $10,000(1.02) in 2 years, $10,000(1.02)2 in 3 years, and so on. If the appropriate discount rate is 10%, what is the present value of the award cash flows?
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Solution Summary
The solution explains two questions relating to calculation of annual payments and present value.
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1. The 10 equal annual payments would be such that the present value is equal to the loan amount. The loan amount is $75,000. The equal payments would ...
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