About the value of perpetual payments

Assignment Help Financial Management

Reference no: EM13976178

A friend who owns a perpetuity that promises to pay $1,000 at the end of each year, forever, comes to you and offers to sell you all of the payments to be received after the 25th year for a price of $1,000. At an interest rate of 10%, should you pay the $1,000 today to receive payment numbers 26 and onwards? What does this suggest to you about the value of perpetual payments?

Reference no: EM13976178

Questions Cloud

Why common stock investor demands higher dividend rate : There are two primary means to earn income as a stockholder. The first method is dividend income and the second method is earnings from capital gains. Discuss the dividend payment requirements of a common stock versus preferred stock, in terms of whi..

Common stock pays a dividend : Abercrombie & Fitch's common stock pays a dividend of $0.70. It is currently selling for $34.14. If the firm's investors require a return of 10 percent on their investment from buying Abercrombie & Fitch stock, what growth would Abercrombie & Fitch h..

Asses present value and future value problems : Calculate the monthly mortgage payment of principal and interest for the a loan with an initial balance of 150,000, an annual stated interest rate of 6%, and 30 years to maturity. Use Excel to develop this response and present your result within a se..

What is the equipments after-tax net salvage value : Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost $15 million, of which 80% has been depreciated. The used equipment can be sold today for $3.75 million, and its tax rate is 30%. What is the equipment..

About the value of perpetual payments : A friend who owns a perpetuity that promises to pay $1,000 at the end of each year, forever, comes to you and offers to sell you all of the payments to be received after the 25th year for a price of $1,000. At an interest rate of 10%, should you pay ..

What is the standard deviation of the return on investment : Barbara is considering investing in a stock and is aware that the return on that investment is particularly sensitive to how the economy is performing. Her analysis suggests that four states of the economy can affect the return on the investment. Wha..

Management will invest cash flows : Trigen Corp. management will invest cash flows of $1,340,423, $787,958, $958,711, $818,400, $1,239,644, and $1,617,848 in research and development over the next six years. If the appropriate interest rate is 7.15 percent, what is the future value of ..

Assume the same college tuition and retirement home price : You plan to retire in 30 years and plan on saving $15,000 annually, starting next year, for the next 30 years. You expect to need $120,000 about 18 years from now for college tuition for your recently born daughter which must be paid out of these sav..

What was the stock value at the end of the time frame : Four years ago I purchased 100 shares of the XYZ Corp preferred stock. The company pays a $6.75 annual dividend and had a required return of 19%. The most recent required return for the stock is 14%. What was the stock value when purchased? What was ..

User Account

All Pages