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Question
You will receive a $100 annual perpetuity starting at Year 0, a $300 annual perpetuity with the first payment at the end of Year 5, and a $200 semiannual perpetuity (i.e., 2 payments per year) with the first payment in the middle of Year 10. If you require an effective annual interest rate of 14.49 percent, what is the future value of all three perpetuities together? (Hint: The effective semiannual interest rate is equal to (1.1449)1/2− 1.0 = 7%.)
a. $2,091.86
b. $2,785.14
c. $4,213.51
d. Infinite; the future value of any perpetuity is infinite.
e. Cannot determine the value since some payments are received annually and some semiannually.
Answer
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