dolution

 

11. The following table shows the stream of income produced by several different assets. In each case, P1 , P2 , and P3 are the payments made by the asset at the end of years 1, 2, and 3.       

 

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a. For each asset, compute the asset’s present value. (Note that the market interest rate, i, is not the same in each situation.)

 

b. In each case, what is the most a firm would be prepared to pay to acquire the asset?

 

c. Suppose the listed purchase price for an asset were less than its present value. What would you expect to observe?

 

 
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