Question:
Consider the following stream of cash flows:
where the payments of X start one year from today and last for 10 years; and the payments of Y start in 11 years from now and last forever. The interest rate is 4%.
(a) If X = $100 and Y = $200, what is the present value of this stream?
(b) If the present value of the stream is $4,000 and Y = $100, what is the value of X?
(c) Assume now that the value of the stream at year 10 is $8,000 and that Y = 3X. What is the value of X?