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

Solutions

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

Next > < Previous

Related Solutions

Consider a growing perpetuity that will pay $250 in one year.Each year after that, you...

Consider a growing perpetuity that will pay $250 in one year. Each year after that, you will receive a payment that is 7% 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: $5561 $8333 $6215 $4000

A perpetuity will pay $1,025 per year, starting five years after the perpetuity is purchased

A perpetuity will pay $1,025 per year, starting five years after the perpetuity is purchased. What is the present value of this perpetuity on the date that it is purchased, given that the interest rate is 9%. Show your work or inputs.

A perpetuity will pay $700 per year, starting 6 years after the perpetuity is purchased.

A perpetuity will pay $700 per year, starting 6 years after the perpetuity is purchased. What is the present value (PV) of this perpetuity on the day that it is purchased (conside this time 0), given that the annual interest rate is 5%? $10,447.02 $10,969.37 $522.35 $14,000.00

A perpetuity will pay $1,000 per year, starting eight years after the perpetuity is purchased. What...

A perpetuity will pay $1,000 per year, starting eight years after the perpetuity is purchased. What is the present value (in $) of this perpetuity on the date that it is purchased, given that the interest rate is 4%? (Round your answer to the nearest cent.) $

11. A corporation promises to pay you $8 a year for 20 years and $200 after...

11. A corporation promises to pay you $8 a year for 20 years and $200 after 20 years. What is the maximum amount you would pay for the security if you wanted to earn 8 percent? (5 points)

The present value of a growing perpetuity, with cash flow C1 occurring one year from now,...

The present value of a growing perpetuity, with cash flow C1 occurring one year from now, is given by: [C1/(r - g)], where r > g. Group of answer choices True Fals

consider a financial asset that pays a perpetuity of $600 per year, starting one year from...

consider a financial asset that pays a perpetuity of $600 per year, starting one year from now. The discount rate is 9%. If the required investment today is $4000, what is the net present value of the investment

If you expect a firm to pay a $1.8 per year in perpetuity, your tax rate...

If you expect a firm to pay a $1.8 per year in perpetuity, your tax rate is 25%, and your required rate of return is 12.4%. How much are you willing to pay for its stock? Round answer to two decimal places.

What is a growing perpetuity? Compare/contrast this to a ‘simple’ perpetuity in a few paragraphs.

As a result of winning the Gates Energy Innovation Award, you are awarded a growing perpetuity....

As a result of winning the Gates Energy Innovation Award, you are awarded a growing perpetuity. The first payment will occur in a year and will be for $2,685. You will continue receiving monetary awards annually with each award increasing by 4% over the previous award, and these monetary awards will continue forever. If the appropriate annual interest rate is 8.08%, what is the present value of this award?

Subjects