With a required rate of 8%, what is the present value of a growing perpetuity wh

ID: 2660670 • Letter: W

Question

With a required rate of 8%, what is the present value of a growing

perpetuity where the first cash flow of $200 occurs at the end of the third year and grows by 2%

forever after the third year?

Q1. Describe the type of problem, such as present value of a deferred growing annuity

or future value of a single lump sum. Sum problems may be a combination of two

types of problems.

Q2.Show a time line identifying the cash flows and desired solution. In a complicated

problem, you may use more than one timeline, or add notes to explain intermediate

values on your time line.

PV after 3 years=200/(0.08-0.02)=$3333.4

so PV today=3333/1.08^3=2646

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