(Related to Checkpoint 6.5) (Present value of a growing perpetuity) What is the present value of a perpetual stream of cash flows that pays $5,500 at the end of year one and the annual cash flows grow at a rate of 3% per year indefinitely, it the appropriate discount rate is 11%? What if the appropriate discount rate is 9%? a. If the appropriate discount rate is 11%, the present value of the growing perpetuity is $ (Round to the nearest cent.) b. If the appropriate discount rate is 9%, the present value of the growing perpetuity is $ (Round to the nearest cent.)
(Related to Checkpoint 6.5) (Present value of a growing perpetuity) What is the present value of a perpetual stream of cash flows that pays $5,500 at the end of year one and the annual cash flows grow at a rate of 3% per year indefinitely, it the appropriate discount rate is 11%? What if the appropriate discount rate is 9%? a. If the appropriate discount rate is 11%, the present value of the growing perpetuity is $ (Round to the nearest cent.) b. If the appropriate discount rate is 9%, the present value of the growing perpetuity is $ (Round to the nearest cent.)
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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Transcribed Image Text:(Related to Checkpoint 6.5) (Present value of a growing perpetuity) What is the present value of a perpetual stream of
cash flows that pays $5,500 at the end of year one and the annual cash flows grow at a rate of 3% per year indefinitely, if the
appropriate discount rate is 11%? What if the appropriate discount rate is 9%?
a. If the appropriate discount rate is 11%, the present value of the growing perpetuity is $ (Round to the nearest cent.)
b. If the appropriate discount rate is 9%, the present value of the growing perpetuity is $
(Round to the nearest cent.)
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Expert Solution
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A perpetuity is a series of equal and regular payments that go on forever. These payments continue indefinitely. The present value of the payments is the discounted value of cash flows that occur in future.
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