A perpetuity has annual payments. The first payment is for $330 and then payments increase by...
A perpetuity has annual payments. The first payment is for $330 and then payments increase by $10 each year until they become level at $600. Find the value of this perpetuity at the time of the first payment using an annual effective interest of 4%. (Round your answer to the nearest cent.)
Homework Answers
Value of perpetuity at time 27 = CF28/rate
=600/4%
=15000
Present Value of the payments= NPV of growing amounts+PV of perpetuity
= 7130.15+ 15000/(1+4%)^27
= 12332.40
Workings
| Year | Payment |
| 1 | 330 |
| 2 | 340 |
| 3 | 350 |
| 4 | 360 |
| 5 | 370 |
| 6 | 380 |
| 7 | 390 |
| 8 | 400 |
| 9 | 410 |
| 10 | 420 |
| 11 | 430 |
| 12 | 440 |
| 13 | 450 |
| 14 | 460 |
| 15 | 470 |
| 16 | 480 |
| 17 | 490 |
| 18 | 500 |
| 19 | 510 |
| 20 | 520 |
| 21 | 530 |
| 22 | 540 |
| 23 | 550 |
| 24 | 560 |
| 25 | 570 |
| 26 | 580 |
| 27 | 590 |
Formulae for calculation
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