At a discount rate of 17.50%, find the present value of a perpetual payment of $2,500 per year. If the discount rate were lowered to 8.75%, half the initial rate, what would be the value of the perpetuity?
At a discount rate of 17.50%, find the present value of a perpetual payment of $2,500 per year. If the discount rate were lowered to 8.75%, half the initial rate, what would be the value of the perpetuity?
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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Part 1
(Present value of a perpetuity) At a discount rate of
17.50%,
find the present value of a perpetual payment of
$2,500
per year. If the discount rate were lowered to
8.75%,
half the initial rate, what would be the value of the perpetuity?Question content area bottom
Part 1
a. If the discount rate were
17.50%,
the present value of the perpetuity is
$enter your response here.
(Round to the nearest cent.)Part 2
b. If the discount rate were lowered to
8.75%,
half the initial rate, the present value of the perpetuity is
$enter your response here.
(Round to the nearest cent.)Expert Solution
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