A perpetuity will pay $1,000 per year, starting eight years after the perpetuity is purchased. What...

A perpetuity will pay $1,000 per year, starting eight years after the perpetuity is purchased. What is the present value (in $) of this perpetuity on the date that it is purchased, given that the interest rate is 4%? (Round your answer to the nearest cent.)

Solutions

Expert Solution

Value as on year 8=Perpetual cash flows/interest rate

=1000/0.04

=25000

Hence present value=Value as on year 8*Present value of discounting factor(rate%,time period)

=25000/1.04^7

=$18997.95(Approx)

jeff jeffy answered 1 year ago

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