The price of a perpetuity with monthly cash flows of $50 when the current interest rate is 7.24% p.a. compounding monthly and the first cash flow occurs at the end of month #2 is:
Perpetuity is periodic cash inflow of even amount for indefinite period of time, in this question we need to find the PV of the cash inflows.
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Interest rate per month = 7.24/12 = .6033% per month
Price of the perpetuity = Periodic payment/ interest rate
= 50/0.006033
= $8287.75
Since first payment is received at the end of month 2, we need to discount further to the PV
So price of the perpetuity = 8287.75/(1 + 0.006033)
= 8287.75/1.006033
= $8238.05
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Hope that helps.
Feel free to comment if you need further assistance J
The price of a perpetuity with monthly cash flows of $50 when the current interest rate...
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