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Determining the bond worth today

Problem: Suppose a State of Maryland bond will pay $1,000 eight years from now. If the going interest rate on these 8-year bonds is 5.5%, how much is the bond worth today?

You inherited an oil well that will pay you $25,000 per year for 25 years, with the first payment being made today. If you think a fair return on the well is 7.5%, how much should you ask for it if you decide to sell it?

A. $284,595

B. $299,574

C. $314,553

D. $330,281

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## Q : Incremental cash flows regarding problem

You have decided that a 15% discount rate is appropriate for this type of investment. The incremental cash flows associated with each of the proposals are: