1. Capital refers to funds acquired for use over long periods of time for the purpose of:
a. acquiring long-lived assets such as machinery, land, buildings, etc.
b. getting businesses started.
c. financing permanent working capital.
d. All of the above
2. Find the present value of the following streams of cashflow. The interest rate in all cases is 18% APR with semiannual compounding.
a) A monthly annuity in which the first payment is $100. The first payment occurs one month from today. Each subsequent payment is 0.5% higher than the previous. There are twenty payments in all.
b) A perpetuity in which the first payment is $100. The first payment occurs one month from today. Each subsequent payment is 0.5% higher than the previous.
c) A perpetuity in which the first payment is $100 ∗ (1 + .005)^20. The first payment occurs 21 months from today. Each subsequent payment is 0.5% higher than the previous. You can solve this question without doing any further PV calculation, and only using your answers from the two questions above.