1. 4. Calculate the present value of a growing perpetuity that begins payments o

Question

1.                 4.Calculate the present value of a growing perpetuity that begins payments of $100 one year from today and has a required return of 12% and a growth rate of 4%.

2.             5.What is the value of the perpetuity in problem #4 if the first payment doesn

Calculate the present value of a growing perpetuity that begins payments of $100 one year from today and has a required return of 12% and a growth rate of 4%. What is the value of the perpetuity in problem #4 if the first payment doesn't occur until 3 years from today? Hint: Use a timeline and remember that two years from today, this cash flow stream is identical to the one in problem #4. The problem reduces to adjusting for those two years.

Explanation / Answer

4.Calculate the present value of a growing perpetuity that begins payments of $100 one year from today and has a required return of 12% and a growth rate of 4%.

present value of a growing perpetuity = 100/(0.12-0.04)

Present value of a growing perpetuity = $1250

5.What is the value of the perpetuity in problem #4 if the first payment doesn

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