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 Post subject: Present Value of Perpetuity QuestionPosted: Mon, 5 Apr 2010 23:56:28 UTC
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Joined: Sat, 3 Apr 2010 03:12:17 UTC
Posts: 3
I need to find the present value of a perpetuity of \$50, with the first payment received at the end of the 16th year. Discount rate = 8%

this is how i have done it so far. If somebody could tell me whether I am on the right track I would be grateful.

PV = [PV of 50\$ perpetuity discounted at 8%] - [PV of 50\$ annuity received for 15 years

--> PV = [50/0.08] - [50(1-(1.08)^-15)/0.08]

= \$197.03

thanks guys/gals!

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 Post subject: Posted: Tue, 6 Apr 2010 04:42:38 UTC
 Member of the 'S.O.S. Math' Hall of Fame

Joined: Sun, 24 Jul 2005 20:12:39 UTC
Posts: 3724
Location: Ottawa Ontario
A perpetuity means that the payment amount is simply the interest;
so enough has to be in the fund to permit this; with a \$50 payment
and 8% rate, then \$625 is required in fund: 625 * .08 = 50

So now you need to find the PV of the required \$625; OK?

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