
#1




Perpetuity question
The present value of a perpetuity paying 1 every two years with first payment due immediately is 7.21 at an annual effective rate of i.
Another perpetuity paying R every three years with the first payment due at the beginning of year two has the same present value at an annual effective rate of i + 0.01. Calculate R. (A) 1.23 (B) 1.56 (C) 1.60 (D) 1.74 (E) 1.94 My approach: Since the first payment is at t=2, I want the perpetuity formula to be at t=0 or t=3. I chose t=3. What did I do wrong? Edit: Answer is D Last edited by Futon; 11202017 at 05:34 PM.. 
#5




Quote:
This solution does nothing for me. I do not understand why they are discounting the second perpetuity back by a year making the perpetuity at time = 1. Also that mysterious "+1". It's a very unintuitive solution imo. 
Thread Tools  Search this Thread 
Display Modes  

