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What is the value today of receiving $1,449.00 per year forever? Assume the first payment is made 6.00 years from today and the discount rate is 5.00%.

User Tsauerwein
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Final answer:

The present value of receiving $1,449.00 per year forever, starting 6 years from today at a 5.00% discount rate, is approximately $21,625.86.

Step-by-step explanation:

The question asks about the present value of a perpetuity, which is a series of payments that continue indefinitely. Given the payment amount is $1,449.00 per year starting 6 years from today and the discount rate is 5.00%, we can calculate the present value of this perpetuity using the formula for the present value of a perpetuity:

Present Value = Payment / Discount Rate

However, since the payments start 6 years from now, we must also discount this amount back to the present value 6 years from today. The formula for the present value of the perpetuity must be adjusted to:

Present Value = (Payment / Discount Rate) / (1 + Discount Rate)number of years until first payment

Plugging in the values, we get:

Present Value = ($1,449 / 0.05) / (1 + 0.05)6 = $28,980 / (1.3401) ≈ $21,625.86

This value represents what the perpetuity is worth in today's dollars, considering that the first payment will occur 6 years from now at a discount rate of 5%.

User Nand Lal
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