Question

You are evaluating a growing perpetuity investment from a large financial services firm. The investment promises an initial payment of $2,176 at the end of this year and subsequent payments that will grow at a rate of 3.4 percent annually. If you use a 9 percent discount rate for investments like this, what is the present value of this growing perpetuity?

Answer 1

Answer:

the present value of this growing perpetuity is $83,692.31

Explanation:

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

present value of this growing perpetuity is

= Payment at end of this year ÷ (Discount rate - Growth rate)

= $2,176 ÷ (0.09-0.034)

= $83,692.31

Hence, the present value of this growing perpetuity is $83,692.31