The first payment of a perpetuity-immediate is 60. Subsequent payments decrease by 1 till they reach a level of k. Payments remain constant at k thereafter. The present vale of the perpetuity is equal to the present value of a perpetuity-immediate paying 44 each year. The annual effective interest rate is 5%. Calculate k
I set this up as
(Da) angle 60-k + v^60-k (k/i) = 44/i = PV
The answer sets it up as
(Da) angle 60-k + (k/i) = 44/i = PV
Why would you not discount the value of the perpetuity after time 60-k to time 0?
I set this up as
(Da) angle 60-k + v^60-k (k/i) = 44/i = PV
The answer sets it up as
(Da) angle 60-k + (k/i) = 44/i = PV
Why would you not discount the value of the perpetuity after time 60-k to time 0?
Decreasing then Level perpetuity question
