Question

1. What is the value today of receiving $2,422.00 per year forever? Assume the first payment is made next year and the discount rate is 12.00%.

2. What is the value today of receiving $1,429.00 per year forever? Assume the first payment is made 6.00 years from today and the discount rate is 4.00%.

3. If you are willing to pay $42,377.00 today to receive $4,353.00 per year forever then your required rate of return must be ____%. Assume the first payment is received one year from today.

4. If you are willing to pay $24,452.00 today to receive a perpetuity with the first payment occurring next year then the payment must be $______. Assume a 9.00% discount rate.

5. What discount rate would make you indifferent between receiving $3,393.00 per year forever and $5,267.00 per year for 23.00 years? Assume the first payment of both cash flow streams occurs in one year.

Answer 1

Dear student, only one question is allowed at a time. I am answering the first question

1)

Value of a perpetuity (amount to be received forever for each year)

= A / r

Where,

A = Amount receivable each year = $2,422

r = Rate of interest = 12% or 0.12

So, Value of perpetuity

= $2,422 / 0.12

= $ 20,183.33