A perpetuity-due with varying annual payments is available. During the first five years the payment is...

Question

Question

A perpetuity-due with varying annual payments is available. During the first five years the payment is constant and equal to

business finance

Answer 1

Answer #1

751.50= 40/1.067+ 40/(1.067)^2+ 40/(1.067)^3+ 40/(1.067)^4+ [40+ {40(1+k%)/0.067-k%}]/(1.067)^5

615.088= [40+{40(1+k%)/0.067-k%}]/(1.067)^5

850.67=[40+{40(1+k%)/0.067-k%}]

810.67=40(1+k%)/0.067-k%

54.315-8.1067k= 40+0.4k

14.315=8.5067k

k=1.68%

Answer 2

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