Question

a) Calculate the PV of a perpetuity with a cash flow of $111.11 received every year....

a) Calculate the PV of a perpetuity with a cash flow of $111.11 received every year. The first cash flow occurs in year 1. The interest rate is 11% simple annual rate.

b) Calculate the PV of a perpetuity with a cash flow of $222.22 received every second year. The first cash flow occurs in year 2. The interest rate is 11% simple annual rate.

c) Calculate the PV of a perpetuity with a cash flow of $333.33 received every third year. The first cash flow occurs in year 3. The interest rate is 11% simple annual rate.

Homework Answers

Answer #1

Answer a.

Annual payment = $111.11
Interest rate = 11%

Present value of perpetuity = Annual payment / Annual interest rate
Present value of perpetuity = $111.11 / 0.11
Present value of perpetuity = $1,010.09

Answer b.

Payment every two years = $222.22
Interest rate = 11%

Present value of perpetuity = $222.22/1.11^2 + $222.22/1.11^2 + ….
Present value of perpetuity = ($222.22/1.11^2) / (1 - (1/1.11)^2)
Present value of perpetuity = $222.22 / (1.11^2 - 1)
Present value of perpetuity = $222.22 / 0.2321
Present value of perpetuity = $957.43

Answer c.

Payment every three years = $333.33
Interest rate = 11%

Present value of perpetuity = $333.33/1.11^3 + $333.33/1.11^3 + ….
Present value of perpetuity = ($333.33/1.11^3) / (1 - (1/1.11)^3)
Present value of perpetuity = $333.33 / (1.11^3 - 1)
Present value of perpetuity = $333.33 / 0.367631
Present value of perpetuity = $906.70

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
1. Calculate the PV of an annuity due if the periodic cash flow = $9,200, the...
1. Calculate the PV of an annuity due if the periodic cash flow = $9,200, the time frame = 5 years and the annual interest rate = 8%. 2. Calculate the PV of an ordinary annuity if the periodic cash flow = $11,000, the time frame = 4 years, and the annual interest rate = 10%. 3. Mary intends to invest $15,000 each year for 6 years at an expected interest rate of 7% per year. If Mary invests monthly,...
a. Calculate the present value (PV?) of a cash inflow of $500 in one year, and...
a. Calculate the present value (PV?) of a cash inflow of $500 in one year, and a cash inflow of $1,000 in 5 years, assuming a discount rate of 15%. b. Calculate the present value (PV?) of an annuity stream of 5 annual cash flows of $1,200, with the first cash flow received in one year, assuming a discount rate of 10%. c.What is the present value of a perpetual stream of annual cash flows of $100, with the first...
Give the present value of a perpetuity that pays $1,000 at the end of every year....
Give the present value of a perpetuity that pays $1,000 at the end of every year. The first payment occurs at the end of the fifth year and the annual effective interest rate is 3%.
A perpetuity will make payments of $100,000 every third year, with the first payment occurring three...
A perpetuity will make payments of $100,000 every third year, with the first payment occurring three years from now. The annual nominal interest rate convertible quarterly is 8%. Find the present value of this perpetuity. (I did this problem, just want to check if I did it correctly because the answer doesn't look right to me, not sure what I did incorrectly, I got PV = 372,800.47)
For each of the following annuities, calculate the annual cash flow. (Do not round intermediate calculations...
For each of the following annuities, calculate the annual cash flow. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) If PV is 31, 500, Years are 6, and Interest Rate is 8%, what is Cash Flow? If PV is 28,300, Years are 8, and Interest Rate is 6%, what is Cash Flow? If PV is 146,000, Years are 11, and Interest Rate is 11%, what is Cash Flow? If PV is 214,500, Years...
A perpetuity pays $390.26 at the start of each year. The present value of this perpetuity...
A perpetuity pays $390.26 at the start of each year. The present value of this perpetuity at an annual effective interest rate i is equal to the present value of an annuity which pays 800 at the start of the first year, 790 at the start of the second year, 780 at the start of the third year and so on for 20 years. Find i to 1 significant figure.
What is the present value (PV) today of a stable perpetuity that pays $15,000 every 4...
What is the present value (PV) today of a stable perpetuity that pays $15,000 every 4 years, starting 2 years from today? The appropriate annual discount rate is 19% p.a. Round your answer to the nearest dollar.
The discount rate used to calculate the PV of cash flows expected to be received in...
The discount rate used to calculate the PV of cash flows expected to be received in the future must consider 2 factors. What are they?
An investor is considering an investment that pays a cash flow of $544 annually in perpetuity....
An investor is considering an investment that pays a cash flow of $544 annually in perpetuity. The first cash flow is in the 3th year. If the interest rate is 7%, what is the present value of this investment? (round your final answer to the nearest dollar)
. Assuming a discount rate of 14%, calculate the PV of a cash flow stream that...
. Assuming a discount rate of 14%, calculate the PV of a cash flow stream that pays $500 in one year and $1,000 in 5 years.