Given an interest rate of 10% per year, what is the value at the end of 5 years of a perpetual stream of 120$ annual payments starting at the end of year 9?
I dont understand the time fator in this question - i.e how do you encorporate year 9 and year 5 into the appropriate formula
Please provide the formula, solution and a brief explanation.
The easiest way to approach this problem is to first calculate the value of this perpetuity at the end of year 9, and then find its value at the end of year 5.
If we're standing at the end of year 9, we will receive $120 now, $120 one year from now, $120 two years from now, etc. Given that the interest rate is 10% (0.10), the present value of th perpetuity, when standing at the end of year 9 ...
Value of a perpetual stream of payments is determined.