A rich relative has bequeathed you a growing perpetuity. The first payment will occur in a year and will be $1,000. Each year after that, you will receive a payment on the anniversary of the last payment that is 8% larger than the last payment. This pattern of payments will go on forever. Assume that the interest rate is 12% per year. What is today's value of the bequest?
A rich relative has bequeathed you a growing perpetuity. The first payment will occur in a year and will be $1,000. Each year after that, you will receive a payment on the anniversary of the last payment that is 8% larger than the last payment. This pattern of payments will go on forever. Assume that the interest rate is 12% per year. What is today's value of the bequest?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A rich relative has bequeathed you a growing perpetuity. The first payment will occur in a year and
will be $1,000. Each year after that, you will receive a payment on the anniversary of the last payment
that is 8% larger than the last payment. This pattern of payments will go on forever. Assume that the
interest rate is 12% per year. What is today's value of the bequest?
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