1. What is the present value of a perpetual stream of cash flows that pays $70,000 at the end of year one and then grows at a rate of 5% per year indefinitely? The rate of interest used to discount the cash flows is 11%.
The present value of the growing perpetuity is $
2. How much do you have to deposit today so that beginning 11 years from now you can withdraw $10,000 a year for the next 5 years (periods 11 through 15) plus an additional amount of $20,000 in the last year (period 15)? Assume an interest rate of 6 percent.
The amount of money you have to deposit today is $
