Given an interest rate of 6.95 percent per year, what is the value at Year 9...

Given an interest rate of 6.95 percent per year, what is the value at Year 9 of a perpetual stream $3,700 payments that begin at Year 20? (Do not round intermediate calculations and round your answer to 2 decimal places , e.g., 32.16.)

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Expert Solution

Answer :-

First solve for the Present Value of a perpetual stream of $3700 payments, using a discount rate of 6.95%.

This calculation is pretty simple as the formula is:

Payment Amount / Interest rate

In this case it is:

$3700 / .0695 = $53,237.41

That formula is

FV / (1 + i)^n, where

FV = $53,237.41

i = .0695

n = 9

$53237.41 / 1.0695^9 = $ 27,190 Ans....

jeff jeffy answered 2 years ago

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