A perpetuity will pay $700 per year, starting 6 years after the perpetuity is purchased.

A perpetuity will pay $700 per year, starting 6 years after the perpetuity is purchased. What is the present value (PV) of this perpetuity on the day that it is purchased (conside this time 0), given that the annual interest rate is 5%?

$10,447.02

$10,969.37

$522.35

$14,000.00

Expert Solution

P = Annuity payment = $700

r = Annual interest rate = 5%

n = 6 years

Present Value of Perpetuity = [P / r] / (1+r)^n

= [$700 / 5%] / (1+5%)^6

= $14,000 / 1.34009564

= $10,447.0156

Therefore, Present Value of Perpetuity is $10,447.02

jeff jeffy answered 2 years ago

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