A well known result from financial analysis is the perpetuity pricing formula. The present value of...
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A well known result from financial analysis is the perpetuity pricing formula. The present value of earning a fixed amount of income C in each period from now out to infinity (literally earning C in each period forever), given an inter- est (discount) rate r is: FFF (A) How does PV(C, r) change with C and r? Why is this the case? C (1+r)t PV (C,r) = Σ 1=1 (1) (B) What is the value of a perpetuity that pays $100 a year if the interest (discount) rate is r = .05? (c) What is the value of a perpetuity that pays $100 a year, beginning in year 3, if the interest (discount) rate is r = .05? A well known result from financial analysis is the perpetuity pricing formula. The present value of earning a fixed amount of income C in each period from now out to infinity (literally earning C in each period forever), given an inter- est (discount) rate r is: FFF (A) How does PV(C, r) change with C and r? Why is this the case? C (1+r)t PV (C,r) = Σ 1=1 (1) (B) What is the value of a perpetuity that pays $100 a year if the interest (discount) rate is r = .05? (c) What is the value of a perpetuity that pays $100 a year, beginning in year 3, if the interest (discount) rate is r = .05?
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A PVCr changee with any change in C and r If r increasedecrease then the ... View the full answer
Related Book For
Smith and Roberson Business Law
ISBN: 978-0538473637
15th Edition
Authors: Richard A. Mann, Barry S. Roberts
Posted Date:
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