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A government bond makes a promise to pay $20,000 next year. This amount will grow in perpetuity at a 1% rate every year after the
A government bond makes a promise to pay $20,000 next year.
This amount will grow in perpetuity at a 1% rate every year after the first payment.
Assume 9% discount rate.
a. Calculate the present value of the perpetuity.
b. Calculate the present value of the perpetuity if the first payment is made 11 years from today.
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