Given an interest rate of 14% per year, what is the value today of a perpetual s

Question

Given an interest rate of 14% per year, what is the value today of a perpetual stream of $1,500 annual payments that begins in one year? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Perpetuity value $ Given an interest rate of 14% per year, what is the value today of a perpetual stream of $1,500 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 5 percent per year, what is the value at date t = 7 of a perpetual stream of $3,400 payments that begins at date t = 15? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Perpetuity value $

Explanation / Answer

The value of the perpetual stream is given by

= 1500/.14

=10714.29

Now if the payment is made in one year

Then tha velaue would be = 1500 + 10714.29/(1.14)

=9398.496 + 1500

=10898.5

The value of perpetuity value of stream of 3400 that begins at date t=7

The value at t=14 = 3400/.05

Now discounting by 7 years = 3400/(.05)(1.14)^7

= 27175.34

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