Question

We will follow-up the basic perpetuity with a delayed perpetuity. Watch the Chapter 5 Part 2 video for an example of a delayed perpetuity Consider a perpetuity that pays $800 each year forever with the first payment occuring at the end of year 5. The interest rate is 6.2%. I start by calculating the value of the perpetuity (800 / 0.062) and this is $12,903.2258. Where in the timeline does this value belong

Answer 1

Answer:

At the end of year 4 (one year before the first cash flow)

Explanation:

According to the present value of perpetuity concept here we divided the predicted cash flows by the rate of that period by calculating this it provides the present value that is prior to the cash flow now if we want for more years so we should have to discount over that time period

Since in the given situation the starting of the cash flows is from the ending of year 5 therefore the timeline would be at the closing of year 4 i..e one year prior to the first cash flow