Chance to purchase a perpetual security

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Reference no: EM13808211

You have a chance to purchase a perpetual security that has a stated annual payment (cash flow) of $50. However, this is an unusual security in that the payment will increase at an annual rate of 5 percent per year; this increase is designed to help you keep up with inflation. The next payment to be received (your first payment, due in 1 year) will be $52.50. If your required rate of return is 15 percents, how much should you be willing to pa for this security?

Reference no: EM13808211

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Chance to purchase a perpetual security : You have a chance to purchase a perpetual security that has a stated annual payment (cash flow) of $50. However, this is an unusual security in that the payment will increase at an annual rate of 5 percent per year; this increase is designed to help ..

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