Consider a growing perpetuity that will pay $200 in one year.Each year after that, you...

Consider a growing perpetuity that will pay $200 in one year. Each year after that, you will receive a payment that is 5% larger than the last payment. This pattern of payments will continue forever. If the interest rate is 10%, then the value of this perpetuity is closest to:

		$1560
		$3360
		$4000
		$2000

Expert Solution

To calculate the present value, we will use the following formula-

Present value = cash flow next year/ interest rate - growth rate

Present value = $200/0.10-0.05

Present value =$200/0.05

Present value = $4000

jeff jeffy answered 2 years ago

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