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    First Payment Additions

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    Your required a rate of return is 4%. What is the value of a contract that pays the buyer $100 a year forever (the first payment is made exactly one year after purchase) plus an additional $1000 a year for the first 10 years (but, the first payment is made immediately - in other words, the $100 payments are made at the end of each year and the $1000 payments are made at the start of each year)?

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    The value of contract is = value of $100 for ever + value of $1000 for 10 years
    Value of $100 forever = ...

    Solution Summary

    The expert examines first payment additions for the rate of returns. The value of a contract that pays the buyer are determined.