Course: Theory of Interest FM) A perpetuity is purchased for $7,000. It's first annual payment of...
Course: Theory of Interest
FM) A perpetuity is purchased for $7,000. It's first annual payment of $200 will occur five years from now. Each subsequent payment is increased by an amount C from the previous payment (the payments as 200, 200 + C, 200 + 2C, ...). If the effective annual interest rate is 4% find the value of C.
Answer: $4.3615664730
Homework Answers
perpetuity = annual cash flow / discount rate- g
7000 = 200 / 4% - g
7000 g - 280 = 200
g = 80 / 7000
g = 1.142857
note: where g stand for growing rate
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Course: Theory of Interest
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