Question
I am working on the following practice problem. I know I use the base calculation for a perpetuity where present value = C/r, where c
I am working on the following practice problem. I know I use the base calculation for a perpetuity where present value = C/r, where c equals cost of dollars and r equals interest rate. But I am not sure how to apply it to the problem. How do I calculate present value in each part of the problem?
a) Calculate the present value of a cash flow of $3 every six months in perpetuity. The first cash flow will occur six months from now. The cash flows are shown in the chart below. The interest rate is 9% simple annual rate.
b) Calculate the present value of a cash flow that makes payments in perpetuity. The payments alternate between $3 and $6 as shown in the chart below. The interest rate is 9% simple annual rate.
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