A rich relative has bequeathed you a growing perpetuity. The first payment will occur in a...

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A rich relative has bequeathed you a growing perpetuity. The first payment will occur in a year and will be $1,000. Each year

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Answer 1

Answer #1

Value of growing perpetuity = Payment next year/(Return – growth rate)

Hence, today’s value of bequest = 1000/(14%-2%)

= $8333.33

i.e. $8,333

b.Value immediately after first payment = 1000(1+2%)/12%

= $8,500

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Answer 2

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