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Old 11-10-2017, 04:49 PM
Futon Futon is offline
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Default Increasing Perpetuity problem.



My approach:



I got answer E but the answer is D. What did I do wrong?
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Old 11-10-2017, 05:16 PM
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Gandalf Gandalf is offline
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Quote:
Originally Posted by Futon View Post
My approach:



I got answer E but the answer is D. What did I do wrong?
You are doing an n-year deferred increasing perpetuity immediate, and you have an n-year deferred perpetuity due, or an n-1 year deferred perpetuity immediate.

Last edited by Gandalf; 11-10-2017 at 05:27 PM..
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Old 11-10-2017, 05:30 PM
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Originally Posted by Futon View Post


My approach:



I got answer E but the answer is D. What did I do wrong?
Try doing the "present" value at time n first.

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Old 11-10-2017, 05:31 PM
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Think about the first term of your expression. It is
The first payment is at the end of n years, so that can't be right.
Thanks. Multiplying my setup by v^-1 gave me the right answer.
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Old 11-10-2017, 05:32 PM
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Try doing the "present" value at time n first.

Yup, apparently I discounted all the way to time 0 and I still used the formula for perpetuity immediate instead of due.
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