Question

2) You are given a perpetuity, with annual payments as follows:

1. Payments of 1 at the end of the first year and every three years thereafter.
2. Payments of 2 at the end of the second year and every three years thereafter.
3. Payments of 3 at the end of the third year and every three years thereafter.

The interest rate is 5% convertible semi-annually.

Calculate the present value of this perpetuity.

A. 24

B. 29

C. 34

D. 39

E. 47

Answer 1

Present Value of the perpetuity=(1/(1+5%/2)^(2*1)+2/(1+5%/2)^(2*2)+3/(1+5%/2)^(2*3))*1/(1-1/(1+5%/2)^(2*3))
=38.85609664

Option D