Question

3. (3 Marks) Determine the present value of a deferred perpetuity of $1000 per year if the first payment is due at the end of six years. The interest rate is 12 = 4%

Answer 1

present Value after 6 years = _ _ _ _ _ _(perpetuity Formula)

AnnualCash flow

= $\bg_white \small \frac{1000}{0.04}$

= 25000

Present Value as on Today =

Value After NYears (1 + r)

where N is the no of years

r is the interest Rate

=

25000 (1 +0.04)

=$ 21,370.105

The Present Value is $ 21,370.105

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