Question

Given an interest rate of 4.2 percent per year, what is the value at date t = 7 of a perpetual stream of $2,600 payments that begins at date t = 15? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

1.get the value of eternity in year 15

$\frac{2600}{0.042}=61904.76$

2.bring this value to the required year using discounting

15-7=8

$61904.76\times(\frac{1}{(1+0.042)^8})=44543.29$