Question

How much is the price of a perpetual annuity with quarterly payments of $200 starting 4 years from now and discount rate (dr) 8%? Price is always the period prior to the first payment.

a. $7 430.15
b. $9 423.22
c. $7284.46
d. $7 468.70

Answer 1

PV= $7,284.46

Step-by-step explanation:

Giving the following information:

Cash flow= $200

Interest rate= 0.08/4= 0.02

First, we need to calculate the value of the annuity 4 years from now:

PV= Cf/ i

PV= 200/0.02

PV= $10,000

Now, using the following formula, we determine the value today:

n= 4*4= 16

PV= FV/(1+i)^n

PV= 10,000 / (1.02^16)

PV= $7,284.46