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Homework answers / question archive / What is the present value of a perpetuity that will pay $450 per year with the first payment occurring at year eleven if the appropriate interest rate is 8

What is the present value of a perpetuity that will pay $450 per year with the first payment occurring at year eleven if the appropriate interest rate is 8

Finance

What is the present value of a perpetuity that will pay $450 per year with the first payment occurring at year eleven if the appropriate interest rate is 8.5%?

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Answer?:

Given: PMT = 450, i = 8.5%

FORMULA:  

Present value of perpetuity = PMT/i

Where PMT is the annual payment & i is the instrest rate or discount rate.

PV of perpetuity = 450/8.5%

PV of perpetuity = 450/0.085

PV = 5294.12

Hence, PV of perpetuity = $5294.12