Question

A financial asset sells for $10,000. It will pay $1,200 per year for six years with the first payment at the end of the first year and the last payment at the end of the sixth year. It will also make a payment of $______ per year forever with the first payment made exactly seven years from today. The discount rate for the asset is 9%. Calculate the perpetuity payment of $______. Please explain

Answer 1

10000=1200/(1+9%)^1+1200/(1+9%)^2+1200/(1+9%)^3+1200/(1+9%)^4+1200/(1+9%)^5+1200/(1+9%)^6+(P/9%)/(1+9%)^6

(P/9%)/(1+9%)^6=10000-(1200/(1+9%)^1+1200/(1+9%)^2+1200/(1+9%)^3+1200/(1+9%)^4+1200/(1+9%)^5+1200/(1+9%)^6)

P/9%=(10000-(1200/(1+9%)^1+1200/(1+9%)^2+1200/(1+9%)^3+1200/(1+9%)^4+1200/(1+9%)^5+1200/(1+9%)^6))*(1+9%)^6

P=((10000-(1200/(1+9%)^1+1200/(1+9%)^2+1200/(1+9%)^3+1200/(1+9%)^4+1200/(1+9%)^5+1200/(1+9%)^6))*(1+9%)^6)*9%

=696.87 is perpetuity payment per year

the above is answer..