In: Finance
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
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