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  3. valuation of cash flow streams question 1[5 marks

Valuation of cash flow streams Question 1[5 marks] Suppose that you...

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Accounting

Valuation of cash flow streams
Question 1[5 marks]
Suppose that you are considering an investment product that promises to pay $2,000 at the end of each year for the next five years. Assume that a discount rate of 12% is applicable to similar investment alternatives. Answer questions a) and b) below.
a) How much would you be willing to pay for the investment product? (Lecture notes pp.9-11)
Answer (show the steps/calculation toward your results):
b) Consider another investment product that promises to pay $1,000 every six months for the next five years, with the first payment to be made in six months from today. Applying the same discount rate, how much would you pay for this product? (See p.15 for a monthly case.)
Answer (show the steps/calculation toward your results):

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