A decreasing perpetuity pays $200 at the end of year 1, $185 at the end of...

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A decreasing perpetuity pays $200 at the end of year 1, $185 at the end of year 2 with payments decreasing by 15 per year until a payment of $110 is made. Payments then stay level for 5 years (note: a total of 6 payments of $110 are made). Then payments decrease by $10 per year for 7 years and stay level forever. Calculate the present value of this perpetuity if the annual effective interest rate is 7.50%. A decreasing perpetuity pays $200 at the end of year 1, $185 at the end of year 2 with payments decreasing by 15 per year until a payment of $110 is made. Payments then stay level for 5 years (note: a total of 6 payments of $110 are made). Then payments decrease by $10 per year for 7 years and stay level forever. Calculate the present value of this perpetuity if the annual effective interest rate is 7.50%.

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SOLUTION To calculate the present value of the decreasing perpetuity we need to find the present val... View the full answer