Given an interest rate of 6.9 percent per year, what is the value at Year 8 of a

Question

Given an interest rate of 6.9 percent per year, what is the value at Year 8 of a perpetual stream of $3,650 payments that begin at Year 17? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Given an interest rate of 6.9 percent per year, what is the value at Year 8 of a perpetual stream of $3,650 payments that begin at Year 17? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Explanation / Answer

Answer:

Value of perpetual stream = Payments / Interest rate

= 3650 / 6.9%

=$52898.55

Hence the value at the year 17 - $52898.55

Present value = Future value / (1+ interest rate )^time

Value a year 8 = $52898.55 / (1+0.069)^(17-8)

= $52898.55 / 1.82305

=$29016.51

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