Question

Given an interest rate of 4 percent per year, what is the value at t = 5 of a perpetual stream of $2,400 annual payments that begins at t = 12? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Value at t = 5 $

Answer 1

Value at t = 5 is computed as shown below:

Value at t = 11 is computed as follows:

= Annual payments from t = 12 / interest rate

= $ 2,400 / 0.04

= $ 60,000

So, the value at t = 5 will be:

= $ 60,000 / 1.04^{11 - 5}

= $ 60,000 / 1.04⁶

= $ 47,418.87 Approximately

Feel free to ask in case of any query relating to this question