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Present Value

  1. Mar 15, 2008 #1
    1. The problem statement, all variables and given/known data
    What is the permanent income that corresponds to present value of the two period income path Y 1 =100, Y 2 =125 for the real interest rate r=.5? (Note: 50% not ½%!)

    2. Relevant equations

    PV = Y1 + Y2/(1+r)^t

    3. The attempt at a solution

    Correct Answer:

    a) 110

    I did Pv = 100 + 125/1,5 = 183, but the answer is 110!?
  2. jcsd
  3. Mar 15, 2008 #2
    i found the anser, it s the definition

    1+r/2+r x y1 + y2/1+r !

    its 109,8
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