Question

You have been offered an unusual investment: It pays $3617 every 353 days forever. The next payment will be made 15 days from today. If the investment has a required return of 13.3% APY, what is it worth today (to the nearest dollar)? Use a 365-day year.

Answer #1

The present value of a perpetuity

This formula gives the present value one period before the first payment. One period = 353 days. So, the PV we calculate from this formula is 353 days before the first payment in 15 days. or (353 - 15) = 338 before today.

Daily effective rate = (1 + 0.133)^(1/365) - 1 = 0.0003421653253

We should bring this cash flow to today to get PV0

Can you please upvote? Thank You :-)

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