Given an interest rate of 7.05 percent per year, what is the value at Year 11 of
ID: 2774991 • Letter: G
Question
Given an interest rate of 7.05 percent per year, what is the value at Year 11 of a perpetual stream of $3,800 payments that begin at Year 18? (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 7.05 percent per year, what is the value at Year 11 of a perpetual stream of $3,800 payments that begin at Year 18? (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
Value at end of year 16 = CF1 / Ke = 3,800 / 0.0705 = $ 53,900.71 .......... (perptual stream is going to start from begin of Year 18 i.e. End of year 17 )
PV at year 11 = FV / ( 1.0705)5 = 53,900.71 / 1.4058 = $ 38,340.80.
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