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    A perpetual annuity pays out $20,000 annually and has a discount rate of 8%, so its present value is $25,000. Another annuity pays $100,000 annually with a 10% discount rate, giving it a present value of $1,000,000. A third annuity of $3,000 pays out annually with a 60% discount rate, making its present value $5,000. The final annuity listed pays $60,000 annually with a 5% discount rate, making its present value $1,200,000.

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    A perpetual annuity pays out $20,000 annually and has a discount rate of 8%, so its present value is $25,000. Another annuity pays $100,000 annually with a 10% discount rate, giving it a present value of $1,000,000. A third annuity of $3,000 pays out annually with a 60% discount rate, making its present value $5,000. The final annuity listed pays $60,000 annually with a 5% discount rate, making its present value $1,200,000.

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    5 views1 page

    Chapter 5

    Uploaded by

    Imtiaz
    A perpetual annuity pays out $20,000 annually and has a discount rate of 8%, so its present value is $25,000. Another annuity pays $100,000 annually with a 10% discount rate, giving it a present value of $1,000,000. A third annuity of $3,000 pays out annually with a 60% discount rate, making its present value $5,000. The final annuity listed pays $60,000 annually with a 5% discount rate, making its present value $1,200,000.

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    © All Rights Reserved
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    Chapter - 5

    Problem: p5-26
    Solution:
    Perpetuity = Cashflow/ K
    A= 20000/0.08 = 25000
    B= 100000/0.10 = 1000000
    C= 3000/0.6 = 5000
    D= 60000/0.05 = 1200000

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