Question

"How much is the price of a perpetuity with semi-annual payments. The starting payment is $500 and it will grow each semi-annual period, by 5% (APR), if the discount rate is 8.0% (APR)?" $12 500 $15 000 $10 500 $33 333

Answer 1

PV= 33,333.33

Step-by-step explanation:

Giving the following information:

Cas flow= $500

We need to calculate the semiannual interest rate and growth rate:

Interes rate= 0.08/2= 0.04

Growth rate= 0.05/2= 0.025

To calculate the present value, we need to use the following formula:

PV= Cf/ (i - g)

PV= 500 / (0.04 - 0.025)

PV= 33,333.33