In: Finance
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?
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