It would be great if someone could solve this for me A rich relative has bequeat

Question

It would be great if someone could solve this for me

A rich relative has bequeathed you a growing perpetuity. The first payment will occur in a year and will be $3,000. Each year after that, you will receive a payment on the anniversary of the last payment that is 4% larger than the last payment. This pattern of payments will go on forever. Assume that the interest rate is 10% per year. a. What is today's value of the bequest? b. What is the value of the bequest immediately after the first payment is made? a. What is today's value of the bequest? Today's value of the bequest is Round to the nearest dollar.)

Explanation / Answer

a. present value of perpetuity= cash flow at the end of next year/ (discount rate -growth rate)= 3000/(10%-4%)= 50000

b. value after 1 year = cash flow at the end of next year/ (discount rate -growth rate)= 3000*1.04/(10%-4%)= 52000

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