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Question
You will receive a $100 annual perpetuity, the first payment to be received now, at Year 0, a $300 annual perpetuity payable starting at the end of Year 5, and a $200 semiannual (2 payments per year) perpetuity payable starting midway through Year 10. If you require an effective annual interest rate of 14.49 percent, what is the present value of all three perpetuities together at Year 0? (Hint: The semiannual annuity can be thought of as two annual annuities.)
a. $2,091.86
b. $2,785.14
c. $4,213.51
d. Infinite; the present value of any perpetuity is infinite.
e. Cannot determine the value since some payments are annually and some semiannually.
Answer
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