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<h2 class="hd hd-2 unit-title">The Present Value Operator</h2>
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<h2 class="hd hd-2 unit-title">Exercise: Present Value</h2>
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Exercise: Present Value
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<div class="wrapper-problem-response" tabindex="-1" aria-label="Question 1" role="group"><p>True or false. If the discount rate decreases, the present value of a given future positive cash flow also decreases.</p>
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<h2 class="hd hd-2 unit-title">Perpetuities</h2>
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<h2 class="hd hd-2 unit-title">Interactive: Perpetuity</h2>
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<p style="text-align: left;">The interactive graph below shows the cumulative present value of a perpetuity over time. What happens to the shape of the curve when the growth rate becomes larger than the discount rate?</p>
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<h2 class="hd hd-2 unit-title">Annuities</h2>
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<h3 class="hd hd-2">Annuities</h3>
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<h2 class="hd hd-2 unit-title">Interactive: Annuity</h2>
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<p style="text-align: left;"><span style="color: #313131; font-family: 'Open Sans', 'Helvetica Neue', Helvetica, Arial, sans-serif;">The interactive graph below shows the cash flows of an annuity over time. What happens to the present value of future cash flows as you change the discount rate and time horizon.</span></p>
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<h2 class="hd hd-2 unit-title">Exercise: Annuity</h2>
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Exercise: Annuity
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You have just inherited an office building. You expect the present value of rental income over the next 5 years (net of maintenance and other cost) will be $500,000. An expanding biotech company offers to rent the building at a fixed annual rent for 5 years. After year 5, you could re-negotiate or rent the building to another tenant. </p>
<p>What is the minimum acceptable fixed annual rental payments for this five-year agreement? Use an annual discount rate of 12% and assume the rent payments are paid at the end of the year, so the first rent payment is made in exactly 1 year.</p>
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<p style="display:inline">$</p>
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<h2 class="hd hd-2 unit-title">Our Three Pricing Formulas</h2>
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