Question

If you are willing to pay $44,793.00 today to receive $4,189.00 per year forever then your required rate of return must be ____%. Assume the first payment is received one year from today.

If you are willing to pay $29,453.00 today to receive a perpetuity with the first payment occurring next year then the payment must be $______. Assume a 15.00% discount rate.

What discount rate would make you indifferent between receiving $3,526.00 per year forever and $5,610.00 per year for 25.00 years? Assume the first payment of both cash flow streams occurs in one year.

Answer 1

Hi

As per policy we will solve only first question here

Here Present Value of perpetuity P= $44,793

Annual coupon C=$4,189

Required rate of return r= C/P

= 4189/44793

=9.35%

Thanks