Question

n investment offers $8,700 per year for 17 years, with the first payment occurring one year from now. Assume the required return is 11 percent. What would the value be if the payments occurred forever?

Answer #1

When annual payment received forever | |||||

Annual payment | 8700 | ||||

Rate of return | 11% | ||||

Period | Perpetuity | ||||

Therefore, | |||||

value of investment = 8700/11% = $ 79090.91 |
|||||

Note: | |||||

value of investment when annual payment received for 17 yrs | |||||

Annual payment | 8700 | ||||

Rate of return | 11% | ||||

Annuity PVf at 11% for 17 years | 7.54879 | ||||

Value of investment | 65674.47 | ||||

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