Corporate Finance
3rd Edition
ISBN: 9780132992473
Author: Jonathan Berk, Peter DeMarzo
Publisher: Prentice Hall
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 4, Problem 24P
A rich relative has bequeathed you a growing perpetuity. The first payment will occur in a year and will be $1000. Each year after that, on the anniversary of the last payment you will receive a payment that is 8% larger than the last payment. This pattern of payments will go on forever. If the interest rate is 12% per year,
- a. What is today's value of the bequest?
- b. What is the value of the bequest immediately after the first payment is made?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
A rich relative has bequeathed you a growing perpetuity. The first payment will occur in one year and will be $2,000. 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. If the interest rate is 15% per year,
a. What is today's value of the bequest?
b. What is the value of the bequest immediately after the first payment is made?
a. What is today's value of the bequest?
Today's value of the bequest is $
(Round to the nearest dollar.)
b. What is the value of the bequest immediately after the first payment is made?
The value of the bequest immediately after the first payment is made is $
(Round to the nearest dollar.)
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 11% per year.
a. What is today's value of the bequest?
b. What is the value of the bequest immediately after the first payment is made?
a. What is today's value of the bequest?
Today's value of the bequest is $
(Round to the nearest dollar.)
A rich relative has bequeathed you a growing perpetuity. The first payment will occur in a year and will be $3000 . Each year after that, you will receive a payment on the anniversary of the last payment that is 7% larger than the last payment. This pattern of payments will go on forever. Assume that the interest rate is 9% per year. a. What is today's value of the bequest? b. What is the value of the bequest immediately after the first payment is made?
Chapter 4 Solutions
Corporate Finance
Ch. 4.1 - Prob. 1CCCh. 4.1 - Prob. 2CCCh. 4.2 - Prob. 1CCCh. 4.2 - Prob. 2CCCh. 4.2 - Prob. 3CCCh. 4.3 - Prob. 1CCCh. 4.3 - Prob. 2CCCh. 4.4 - Prob. 1CCCh. 4.4 - What benefit does a firm receive when it accepts a...Ch. 4.5 - How do you calculate the present value of a a....
Ch. 4.5 - How are the formulas for the present value of a...Ch. 4.6 - Prob. 1CCCh. 4.6 - Prob. 2CCCh. 4.7 - Prob. 1CCCh. 4.7 - Prob. 2CCCh. 4.8 - Prob. 1CCCh. 4.8 - Prob. 2CCCh. 4.9 - Prob. 1CCCh. 4.9 - Prob. 2CCCh. 4.A - Your grandmother bought an annuity from Rock Solid...Ch. 4.A - Prob. A.2PCh. 4 - You have just taken out a five-year loan from a...Ch. 4 - Prob. 2PCh. 4 - Calculate the future value of 2000 in a. Five...Ch. 4 - Prob. 4PCh. 4 - Your brother has offered to give you either 5000...Ch. 4 - Prob. 6PCh. 4 - Prob. 7PCh. 4 - Your daughters currently eight years old. You...Ch. 4 - Prob. 9PCh. 4 - Prob. 10PCh. 4 - Suppose you receive 100 at the end of each year...Ch. 4 - You have just received a windfall from an...Ch. 4 - Prob. 13PCh. 4 - You have been offered a unique investment...Ch. 4 - Prob. 15PCh. 4 - Prob. 16PCh. 4 - How would your answer to Problem 16 change if the...Ch. 4 - The British government has a consol bond...Ch. 4 - What is the present value of 1000 paid at the end...Ch. 4 - You are head of the Schwartz Family Endowment for...Ch. 4 - When you purchased your house, you took out a...Ch. 4 - Prob. 22PCh. 4 - Your grandmother has been putting 1000 into a...Ch. 4 - A rich relative has bequeathed you a growing...Ch. 4 - Prob. 25PCh. 4 - You work for a pharmaceutical company that has...Ch. 4 - Your oldest daughter is about to start...Ch. 4 - A rich aunt has promised you 5000 one year from...Ch. 4 - You are running a hot Internet company. Analysts...Ch. 4 - Prob. 31PCh. 4 - Prob. 32PCh. 4 - Prob. 33PCh. 4 - Prob. 34PCh. 4 - Prob. 35PCh. 4 - Prob. 36PCh. 4 - Prob. 37PCh. 4 - Prob. 38PCh. 4 - Prob. 39PCh. 4 - Prob. 40PCh. 4 - Prob. 41PCh. 4 - Prob. 42PCh. 4 - Prob. 43PCh. 4 - Prob. 44PCh. 4 - Prob. 45PCh. 4 - Prob. 46PCh. 4 - Prob. 47PCh. 4 - Prob. 48PCh. 4 - Prob. 49PCh. 4 - Prob. 50PCh. 4 - Prob. 51P
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- A rich relative has bequeathed you a growing perpetuity. The first payment will occur in a year and will be $5,000. Each year after that, you will receive a payment on the anniversary of the last payment that is 5% larger than the last payment. This pattern of payments will go on forever. Assume that the interest rate is 9% per year. a. What is today's value of the bequest? b. What is the value of the bequest immediately after the first payment is made?arrow_forwardA rich relative has bequeathed you a growing perpetuity. The first payment will occur in a year and will be $1000. Each year after that, on the anniversary of the last payment you will receive a payment that is 8% larger than the last payment. This pattern of payments will go on forever. If the interest rate is 12% per year: What is today’s value of the bequest? What is the value of the bequest immediately after the first payment is made?arrow_forwardAarrow_forward
- Arich relative has bequeathed you a growing perpetuity. The first payment will occur in a year and will be $4,000. Each year after that, you will receive a payment on the anniversary of the last payment that is 3% larger than the last payment. This pattern of payments will go on forever. Assume that the interest rate is 15% per year. a. What is today's value of the bequest? b. What is the value of the bequest immediately after the first payment is made? a. What is today's value of the bequest? Today's value of the bequest is $ (Round to the nearest doliar.)arrow_forwardA rich relative has bequeathed you a growing perpetuity. The first payment will occur in a year andwill be $1,000. Each year after that, you will receive a payment on the anniversary of the last paymentthat is 8% larger than the last payment. This pattern of payments will go on forever. Assume that theinterest rate is 12% per year. What is today's value of the bequest?arrow_forwardK 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. a. What is today's value of the bequest? b. What is the value of the bequest immediately after the first payment is made? a. What is today's value of the bequest? Today's value of the bequest is $. (Round to the nearest dollar) b. What is the value of the bequest immediately after the first payment is made? The value of the bequest immediately after the first payment is made is $. (Round to the nearest dollar)arrow_forward
- Your friend Anne is planning to invest $500 each year for five years and will earn a rate of 5.5 percent per year. a) Determine the future value of this annuity due if her first $500 is invested now. Show your work.b) What is the difference between an annuity due and an ordinary annuity? Explain.arrow_forwardA friend who owns a perpetuity that promises to pay $1,000 at the end of each year, forever, comes to you and offers to sell you all of the payments to be received after the 25th year for a price of $1,001. At an interest rate of 10%, should you pay the $1,000 today to receive payment numbers 26 and onwards? What does this suggest to you about the value of perpetual payments?arrow_forwardYou would like to have enough money saved to receive a $90,000 per year perpetuity after retirement. The annual interest rate is 8 percent. Required: How much would you need to have saved in your retirement fund to achieve this goal? a) Assume that the perpetuity payments start on the day of your retirement. b) Assume that the perpetuity payments start one year from the date of your retirement.arrow_forward
- Your friend offers to pay you an annuity of $2,500 at the end of each year for 10 years in return for cash today. You could earn 5.5% on your money in other investments with equal risk. What is the most you should pay for the annuity? Please show your work in excelarrow_forwardYour uncle is about to retire, and he wants to puy an annuity that will provide him with $95,000 of income a year for 20 years, with the first payment coming immediately. The going rate on such annuities is 4.70%. How much would it cost him to buy the annuity today? a. $1,271,700.48 b. $1,309,613.64 c. $1,232,005.40 d. $1,214,613.64 e. $1,250,824.87arrow_forwardYour uncle gives you $92,000 as a gift. Rather than give you a lump-sum, your uncle structures the gift as an annuity that pays $16,250 per year. You will receive the first payment one year later. If the annual interest rate is 12%, how many years does it take for you to receive all the payments for this gift?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
Principles of Accounting Volume 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College
What Does ROI (Return On Investment) Really Mean?; Author: REtipster;https://www.youtube.com/watch?v=Z6ThJvNr1Dw;License: Standard Youtube License