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A perpetuity has annual payments. The first payment is for $330 and then payments increase by...

A perpetuity has annual payments. The first payment is for $330 and then payments increase by $10 each year until they become level at $600. Find the value of this perpetuity at the time of the first payment using an annual effective interest of 4%. (Round your answer to the nearest cent.)

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Answer #1

Value of perpetuity at time 27 = CF28/rate

=600/4%

=15000

Present Value of the payments= NPV of growing amounts+PV of perpetuity

= 7130.15+ 15000/(1+4%)^27

= 12332.40

Workings

Year Payment
1 330
2 340
3 350
4 360
5 370
6 380
7 390
8 400
9 410
10 420
11 430
12 440
13 450
14 460
15 470
16 480
17 490
18 500
19 510
20 520
21 530
22 540
23 550
24 560
25 570
26 580
27 590

Formulae for calculation

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