Question

6. Given a 6 percent discount rate compounded quarterly, what is the present value of a...

6. Given a 6 percent discount rate compounded quarterly, what is the present
value of a perpetuity of $100 per month if the first payment does not begin until the end
of year five?

Could you explain the question in detail with formula plz! I don't understand others poster answers.

Homework Answers

Answer #1

Annual Rate Given =6% (Compounded Quarterly Rate)
Rate per quarter =Annual Rate/4 =6%/4 =1.5%

Since the perpetuity is monthly payment we need to calculate monthly rate
Since in a quarter there are 3 months hence
Monthly Rate formula =(1+Rate Per quarter)^(1/3)-1 =(1+1.5%)^(1/3)-1 =0.497520627265247%

Since the perpetuity begins at year 5
The value of Perpetuity at end of year 5 =PMT/Monthly Rate+PMT (Since Perpetuity begins at start of month)
=100+100/0.497520627265247% =20199.6691

Number of Months =5*12 =60
PV of Perpetuity today =The value of Perpetuity at end of year 5/(1+r)^5
=20199.6691/(1+0.497520627265247%)^60 =14997.66

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
5. What is the present value of $100 per month at a discount rate of 6%,...
5. What is the present value of $100 per month at a discount rate of 6%, if the first payment is received 5 years from now and the last payment is received 18 years from now? Could you explain in detail with formula plz!
13. ABC Corp. is going to pay an annual dividend of $4.23 a share on its...
13. ABC Corp. is going to pay an annual dividend of $4.23 a share on its common stock next year. This year, the company paid a dividend of $4.50 a share. The company adheres to a constant rate of growth dividend policy. What will one share of this common stock be worth seven years from now if the applicable discount rate is 12 percent? Could you explain the question in detail with formula plz! I don't understand others poster answers.
Using a discount rate of 3.6% APR, compounded monthly, what is the present value of a...
Using a discount rate of 3.6% APR, compounded monthly, what is the present value of a monthly perpetuity payment of $2,500 if: a) The first payment is made today b) The first payment is made 12 months from now.
5. Using a discount rate of 4.8% APR, compounded monthly, calculate the present value of a...
5. Using a discount rate of 4.8% APR, compounded monthly, calculate the present value of a monthly perpetuity pay‐ ment of $5250 if: (a) the first payment is made one month from now (2 pts.), (b) the first payment is made today (2 pts.), and (c) the first payment is made 30 months from now (2 pts.).
8. You are planning to save for retirement over the next 25 years. To do this,...
8. You are planning to save for retirement over the next 25 years. To do this, you will invest $3,000 a quarter in a stock account and $1,000 a quarter in a bond account. These investments will be made at the beginning of each quarter. The return of the stock account is expected to be 8%, and the bond account will pay 4%. When you retire, you will combine your money into an account with a 6% return. How much...
If the discount rate is 24 percent compounded quarterly, what is the effective weekly rate? (Assume...
If the discount rate is 24 percent compounded quarterly, what is the effective weekly rate? (Assume a 52 week year.) 26.25% 1.92% 0.45% 7.43%
1. The appropriate discount rate for the following cash flows is 6 percent compounded quarterly. Year...
1. The appropriate discount rate for the following cash flows is 6 percent compounded quarterly. Year Cash Flow 1        $900                2          600                3       0                4 1,100                Required: What is the present value of the cash flows? A. $2,202.3 B. $2,254.36 C. $2,247.24 D. $1,129.24 E. $2,292.19 2. What is the future value of $500 in 23 years assuming an interest rate of 9 percent compounded semiannually? A. $665.56 B. $3,787.21 C. $3,628.94 D. $3,597.85 E. $594.59...
What is the present value of $1,500 per year, at a discount rate of 6 percent,...
What is the present value of $1,500 per year, at a discount rate of 6 percent, if the first payment is received 7 years from now and the last payment is received 32 years from now?
10. Consider the following U.S. Treasury bond quotation from The Wall Street Journal. It is June...
10. Consider the following U.S. Treasury bond quotation from The Wall Street Journal. It is June 27, 2020. The bond has a $1,000 face value and pays semiannual coupons. Maturity Coupon Bid Asked Chg AskedYld 06/27/2027 3.675 76.1625 ????? +0.18 8.000 (a) (3 points) How much will an investor receive if he/she sells this T-bond? (b) (4 points) Fill in the missing information for Asked? Could you explain the question in detail with formula plz! I don't understand others poster...
The appropriate discount rate for the following cash flows is 9 percent compounded quarterly. Year Cash...
The appropriate discount rate for the following cash flows is 9 percent compounded quarterly. Year Cash Flow 1        $600                2          600                3       0                4 1,300                What is the present value of the cash flows?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT