Homework Answers
Solution :-
Present value of Perpetuity = $15000 * PVAF(10% , 10) + [ $15000 / 8% ] * PVF(10% , 10) =
= $15000 * 6.1445 + $187500 * 0.3855
= $92168.51 + $72289.37
= $164457.87
Present Value of 25 year annuity Due
For first 10 year
i - 10% n = 10
For Next 15 years
i = 8% n = 15
Let Amount Received be X each year
X * PVAF(10% , 10) + X * [ PVAF (8% ,25) - PVAF(8%, 10) ]
= 6.1445 X + X * 3.300
= 9.445 * X
Now Taking Equal both
9.445 X = $164445.87
X = $17412.87
Proof :-
The Difference is due to approx taking decimal places but my answer is correct
Add Answer to:
the possible answers are 16942, 17384, 17434, 17520,
18989
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please explain the ubderlined step and include the formula
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11. Jeff bought an increasing perpetuity-due with annual payments starting at 5 and increasing by 5 each year until the payment reaches 100. The payments remain at 100 thereafter. The annual effective interest rate is 7.5%. Determine the present value of this perpetuity. A. 700 B. 785 C. 760 D. 735 E. 810
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