Question
You are considering two perpetuities which are identical in every way, except that perpetuity A will begin making annual payments of $1,000 to you one
You are considering two perpetuities which are identical in every way, except that perpetuity A will begin making annual payments of $1,000 to you one year from today while the first payment of $1,000 for perpetuity B will take place eleven years from today. It must be true that the present value of perpetuity A minus that of perpetuity B:
- isequalto$1,00010=10,000.
- is equal to the present value of an annuity paying $1,000 dollars each year for 11 years..
- is equal to the present value of an annuity DUE paying $1,000 dollars each year for ten years.
- is greater than the present value of perpetuity B.
How?
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Intermediate Accounting IFRS
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield
3rd edition
1119372933, 978-1119372936
