Since perpetuity payments continue forever, how can a present value be computed? Why isn’t the present value infinite?
Answer to relevant QuestionsHow can you use the concepts illustrated in computing the number of payments in an annuity to figure how to pay off a credit card balance? How does the magnitude of the payment impact the number of months? Compute the future value in year 7 of a $2,000 deposit in year 1 and another $2,500 deposit at the end of year 4 using an 8 percent interest rate.Given a 4 percent interest rate, compute the year 6 future value of deposits made in years 1, 2, 3, and 4 of $1,100, $1,200, $1,200, and $1,500. You are looking to buy a car. You can afford $450 in monthly payments for four years. In addition to the loan, you can make a $1,000 down payment. If interest rates are 5 percent APR, what price of car can you afford?What annual interest rate would you need to earn if you wanted a $600 per month contribution to grow to $45,000 in six years?
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