How much is the price of a perpetuity paying $1000 per year, if the discount rate...

How much is the price of a perpetuity paying $1000 per year, if the discount rate is 8.0% and its first payment is in 3 years?

Expert Solution

Value as on year 3 = Annual inflows / Interest rate = $1,000 / 0.08 = $12,500

Value of this perpetuity today = Value as on year 3 / (1 + r)^2

Value of this perpetuity today = $12,500 / (1 + 0.08)^2

Value of this perpetuity today = $10,716.74

jeff jeffy answered 2 years ago

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How much is the price of a perpetuity paying $1000 per year, if the discount rate...

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