Consider a growing perpetuity that will pay $100 in one year

Finance May 18, 2021

Consider a growing perpetuity that will pay $100 in one year. Each year after that, you will receive a payment on the anniversary of the last payment that is 6% larger than the last payment. This pattern of payments will continue forever. If the interest rate is 11%, then the value of this perpetuity is:

Expert Solution

Answer:

First Payment	$100.00
Growth Rate	6.00%
Interest Rate	11.00%
Value of perpetuity	$2,000.00	=100/(11%-6%)

Archived Solution

Unlocked Solution

You have full access to this solution. To save a copy with all formatting and attachments, use the button below.

Already a member? Sign In

Important Note: This solution is from our archive and has been purchased by others. Submitting it as-is may trigger plagiarism detection. Use it for reference only.

For ready-to-submit work, please order a fresh solution below.

Or get 100% fresh solution

Get Custom Quote