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Given an interest rate of 9.5 percent per year, what is the value at date t...

Given an interest rate of 9.5 percent per year, what is the value at date t = 5 of a perpetual stream of $900 payments with the first payment at date t = 15?

A.4102.21

B. 9573.68

C. 4269.96

D. 4185.933

E.3822.77

Solutions

Expert Solution

Ans E.3822.77

Value of Stream at t=15 = Payments / Interest Rate

                                       = 900 / 9.5%

                                        = $ 9473.68

Value of Stream at t = 5 = Value of Stream at t=15 / ( 1 + interest rate)^no of period

                                        = 9473.68 / (1 + 9.5%)^10

                                        = $ 3822.77

jeff jeffy answered 1 year ago
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