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s344n2d4d5 [400]
3 years ago
8

A perpetuity will pay $1000 per year, starting five years after the perpetuity is purchased. What is the present value (PV) of t

his perpetuity on the date that it is purchased, given that the interest rate is 4%?
Business
1 answer:
nika2105 [10]3 years ago
5 0

Answer:

$21,370.1071

Explanation:

The computation of the present value of this perpetuity is shown below:

= The present value after five years + present value on the date of purchase

where,

The present value after five years is

= ($1,000) ÷ (1.04)^5

= $821.9271

And, the present value on the date of purchase is

=  $821.9271 ÷ 4%

= $20,548.18

Hence, the present value of the perpetuity is

= $821,.9271 + $20,548.18

= $21,370.1071

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