um.. sounds like the question is not clear..

so the lottery winner will get 750 at the end of year one..
and the second payment in year 10?!

as i read the question, the winner will get his/her first payment at the end of year 10...
so we should calculate the value of the perpetuity at year 10...
then discount it back into year 1...

did i misunderstand the question?

[NEAS: The perpetuity begins in year 10, so discount back to beginning date.]

Gordon

Ex 2.7
2,892

Gordon, remember that a payment at the end of 10 years is only 9 years after a payment at the end of 1 year.

I have trouble finding the correct answers in this forum. Can anyone confirm if you get the same answers like mine? Thanks!

Ex 2.1
12,197

Ex 2.2
(A) 14.2 Years
(B) 6.12 Years

Ex 2.3
NPV = 40

Ex 2.4
NPV = -109

Ex 2.5
8,730

Ex 2.6
7,500

Ex 2.7
2,892

Ex 2.8
15,000

Gordon

If it's the actual discount rate, we should be getting an interest rate using d/(1-d) correct? But this gives negative present values, so no one would actually invest in these cash flows.

W

It's the actual discount rate.

In exercise 2.3 you have a discount rate of 10%.  Is that the same as the discount fator that is shown in the book, like 10%=1-v, so v = .9?  or is 10% = r, the interest rate?

Is it 3% a quarter, or 3% annually compounded quarterly?  Just want to make sure the wording is clear.

[NEAS: 3% a quarter, or 12% a year compounded quarterly.]

The word "save" is used by Brealey and Myers. They mean earn in excess of expenses. If a person earns $25,000 and spends $20,000 on food and rent, he or she has $5,000 to spend on other matters.  You are right; it is not the best term.

In question 2.5, it says the worker expects to save $5000 next year.  Does that mean to say he will earn $5000 next year? The word "save" is confusing, as if he is saving part of the $10,000 he has now.