Given an interest rate of 9% per year, what is the value today of a perpetual st

Question

Given an interest rate of 9% per year, what is the value today of a perpetual stream of $2,000 annual payments that begins today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g.. 32.16.) Perpetuity value Given an interest rate of 4.9 percent per year, what is the value at date f 5 of a perpetual stream of $3,300 payments that begins at date t 10? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g. 32.16.) Perpetuity values References eBook & Resources Learning Objective 06-01 How to determine the future and present value of investments with muttiple cash flows Worksheet section G2i Valuing Level Gash Flows Annuitiees and perpetuners Difficulty: Intermediate

Explanation / Answer

1. Present value of perpetuity of $2,000 that begins today = 2000 + (2000/0.09)

= 2,000+22,222.22

= $24,222.22

2. Value of perpetuity at t = 9 will be the present value of the perpetuity amount of $3300 = 3300/0.049

= 67,346.94

Now its value at t = 5 will be = 67,346.94/(1.049)^(9-5) = 67,346.94/(1.049)^4

= $55,618.07

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