If someone pays you 1 cent every day for the rest of eternity, is that worth infinity dollars?
Find the single percentage discount which is equivalent to a discount of 20% followed by a 30% discount.
If your answer is 10%, enter 10.
You own a bond that will pay 10% per year for the next 10 years, on a principal of $1000. The prevailing discount rate is 10% throughout.
What is the bond worth now?
The discount rate is the interest rate that is used in discounted cash flow analysis.
A 5 year, 5% coupon $1000 treasury bond yielding 5% is currently trading for $995. What trade would you want to execute?
Note: Ignore transaction costs and interest rates.
Assume that \( r > g \).