Given an interest rate of 6.9 percent per year, what is the value at Year 8 of a
ID: 2650274 • Letter: G
Question
Given an interest rate of 6.9 percent per year, what is the value at Year 8 of a perpetual stream of $3,650 payments that begin at Year 17? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
Given an interest rate of 6.9 percent per year, what is the value at Year 8 of a perpetual stream of $3,650 payments that begin at Year 17? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
Explanation / Answer
Answer:
Value of perpetual stream = Payments / Interest rate
= 3650 / 6.9%
=$52898.55
Hence the value at the year 17 - $52898.55
Present value = Future value / (1+ interest rate )^time
Value a year 8 = $52898.55 / (1+0.069)^(17-8)
= $52898.55 / 1.82305
=$29016.51
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