You decide to purchase a financial asset that will pay you $100 per year forever, starting...

You decide to purchase a financial asset that will pay you $100 per year forever, starting 4 years after the purchase is made. What is the value (PV) of this financial asset on the date that you bought it (year 0), given that the interest rate is 6% APR?

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Expert Solution

PV of Perpetuity after 3 years = Amount Paid every year/APR = 100/6% = $1666.67

Amount to be paid = PV Today = PV after 3 years/[(1+APR)^Number of Years] = 1666.67/[(1+0.06)^3] = 1666.67/1.191016 = $1399.37

jeff jeffy answered 2 years ago

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