Answer to Question #83093 in Financial Math for shubham chaudhari

Question

A perpentuity due makes annual payments which begins at 100for first year then increses at 6% through the 10th year and then remain level thereafter. Calculate the present value of this perpentuity if the annual effective rate of interest is equal to 8%.

Answer 1

The present value of this perpentuity if the annual effective rate of interest is equal to 8% is:

PV = D1/(r - g) = 100/(0.08 - 0.06) = 5000.