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streams of payments

Assuming an interest rate of 10%, calculate the present value of the following streams of yearly payments

a) $1,000 per year, forever, with the first payment one year from today

b)$500 per year, forever, with the first payment two years from today

c)$2,420 per year, forever, with the first payment three years from today

I do not know how to encorporate the time factor to this problem - I know the forumla is
PV = C/R - so I know that a = 1000/0.1 = 10,000

Thanks!

Solution Preview

A) This is perpetuity the formula is PV= Perpetual cash Flow / Interest rate
=$1000/10%=$10,000

b) This is a perpetuity starting from next year i.e. If we are in year 1 then the first payment we will receive will be next year. So first calculate ...

Solution Summary

This job highlights streams of payments.

$2.19