Purchase Solution

Constant Risk Rate: Calculating the Present Value

Not what you're looking for?

Ask Custom Question

Question: Next year you will begin receiving $155 dollars per year in perpetuity from your grandparent's family trust fund (first payment is exactly 1 year from today). You consider these payments essentially risk free and have decided to discount them at a constant risk free rate of 6.5%. What is the present value today of these future cash flows? (Hint: draw a time line to illustrate exactly the cash flows for this problem.)
a. 1353
b. 2385
c. 1270
d. 146

Purchase this Solution
Purchase this Solution
Free BrainMass Quizzes
Managing the Older Worker

This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce

Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.

Marketing Research and Forecasting

The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.

Production and cost theory

Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.

Learning Lean

This quiz will help you understand the basic concepts of Lean.

View More Free Quizzes
Related BrainMass Solutions

  • The value of the stock

    Since the dividends grow at a constant rate, we use the constant growth formula to find the present value The value of stock = D1/(Required return - growth rate) D1 = expected dividend = D0 X (1+g) D0 = current dividend = 2.09 g = growth rate = 4%

  • Finance: Free cash flow to equity

    The solution is clear and concise. Thank you. The problem deals with calculating the required rate of return on equity and the present value of free cash flows to equity.

  • Calculating Risk and Capital Using CAPM and CGM Models

    be discounted to (its) present value... to establish the correct price for the asset."

  • NPV Calculations for Expanding Company.

    The economic risk includes: (i) Interest rate risk (ii) Reinvestment risk (iii) Exchange rate risk Political risk includes the country risk.

  • Understanding Theoretical Stock Prices

    To obtain this value, go to Bloomberg.com: Market Data and use the "U.S. 10-year Treasury" bond rate (middle column) as the risk-free rate. In addition, you also need a value for the market risk premium.

  • CAPM and the Constant Dividend Growth Model

    One would have to estimate a discount rate by calculating the costs of equity, debt and capital by estimating betas, default risk, after-tax cost of debt and debt ratio.

  • Corporate Finance: Value of the Stock

    If you plan to buy the stock, hold it for three years, and then sell it for 34.73, what is the most you will pay for it? e. Use the constant growth equation to calculate the present value of the stock. Assume that g=5% and is constant. f.

  • Determining Stock Price and Equilibrium Expected Growth Rate

    ) Third, compute the present values of these expected dividends Present values = PV Factor * Expected Dividends PV Factor = 1/(1+Required rate of return)^Year Year Expected Dividends PV Factor Present value

  • Calculating Stock Prices Using Real-Time Data

    The value for k risk-free is based upon the interest rate for a Ten-Year U.S. Treasury Bond. Given the U.S.

View More Related Solutions