Revision as of 19:43, 18 November 2023 by Admin (Created page with "An annual perpetuity pays 1 one year from now. Payments will then increase by 4% per year for 5 years and 8% per year thereafter. Calculate the present value of this perpetuity at an annual effective interest rate of 12%. <ul class="mw-excansopts"><li>21.13</li><li>23.51</li><li>25.95</li><li>28.87</li><li>31.23</li></ul> {{soacopyright | 2023 }}")
ABy Admin
Nov 18'23
Exercise
An annual perpetuity pays 1 one year from now. Payments will then increase by 4% per year for 5 years and 8% per year thereafter. Calculate the present value of this perpetuity at an annual effective interest rate of 12%.
- 21.13
- 23.51
- 25.95
- 28.87
- 31.23
Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.
ABy Admin
Nov 18'23
Solution: A
[[math]]
\left[\frac{1-\left(\frac{1.04}{1.12}\right)^5}{0.12-0.04}\right]+\left[\left(\frac{1.04}{1.12}\right)^5\left(\frac{1}{0.12-0.08}\right)\right]=3.87+17.26=21.13 [[/math]]
Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.