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Vikentia [17]
3 years ago
5

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
Business
1 answer:
dem82 [27]3 years ago
5 0

Answer:

PV= $7,284.46

Explanation:

Giving the following information:

Cash flow= $200

Interest rate= 0.08/4= 0.02

<u>First, we need to calculate the value of the annuity 4 years from now:</u>

PV= Cf/ i

PV=  200/0.02

PV= $10,000

<u>Now, using the following formula, we determine the value today:</u>

<u></u>

n= 4*4= 16

PV= FV/(1+i)^n

PV= 10,000 / (1.02^16)

PV= $7,284.46

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