Calculate the present value of a growing perpetuity

Assignment Help Financial Management

Reference no: EM13847763

Let the interest rate be 10 percent (r = .10) at all maturities.

Calculate the present value of a growing perpetuity that makes one payment per year with the first payment, made in exactly one year from now, being $1000. Let the payments grow at an annual rate of 10.5 percent (g = .105).

Hint: Consider the trend in the present values as the growth rate increases by comparing your answers to a through c. If you use the standard growing perpetuity formula when g > r, you get a silly answer. Using your intuition from your answers to a through d, what is the real answer?

Reference no: EM13847763

Questions Cloud

How much net operating profit after taxes does the firm : Faisal Ahmed Enterprises has the following income statement. How much net operating profit after taxes (NOPAT) does the firm have?

What components of a security plan are essential : What components of a security plan are essential? How might you think differently about implementing these components to prevent terrorism versus general security threats? (Minimum of 400 hundred words)

Consistent with efficient inventory management : Which of the following statements is most consistent with efficient inventory management?

Capital budgeting can be affected by exchange rate risk : Capital budgeting can be affected by exchange rate risk, transfer pricing, and strategic risk. Explain how these factors may and can impact capital budgeting.

Calculate the present value of a growing perpetuity : Calculate the present value of a growing perpetuity that makes one payment per year with the first payment, made in exactly one year from now, being $1000. Let the payments grow at an annual rate of 10.5 percent (g = .105).

Comparative advantage in the interest rate for both entities : Bank A prefers borrowing at a floating rate while a non-financial firm prefers borrowing at a fixed rate. However, the fixed and floating rate facing the bank is 3% and 3-month LIBOR plus 8 basis points, respectively, while the fixed and the floating..

Calculate the present value of an annuity : Calculate the present value of an annuity that makes annual payments of $1,000,000 every year for 9 years, with the next payment being made exactly one year from now.

Does the narrator seem to love or hate her father explain : This week read Sylvia Plath's "Daddy" in our textbook and then go to Youtube and view and listen to Plath herself reading her poem "Daddy." Does the narrator seem to love or hate her father? Explain

Find out the future -terminal values : At the end of three years, how much is an initial deposit of $100 worth, assuming a compound annual interest rate of (i) 100 percent? (ii) 10 percent? (iii) 0 percent?

User Account

All Pages