Question

At 6.5​% ​APR, what is the present value of ​$2263 per year​ forever, if the first payment will be received 16 years from​ today? ​ (Rounded to the nearest 10​ cents.)

Answer 1

Present value of the perpetuity payment each year= annual payment/discount rate

                                                                                                 = $2,263/0.065

                                                                                                 = $34,815.38

The first payment is made 16 years from today. In order to calculate the present value of the perpetual payment of $2,263 made 16 years from today, the below formula is used: present value of perpetuity payment/(1+ discount rate)^time

         = $34,815.38/(1.065)^16

         = $34,815.38/ 2.7390

         = $12,710.98.

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