How much is annual cash flow associated with the perpetuity

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The Following Questions

1. Calculate the return for each of these investments (capital gain/loss plus dividend).

a) My portfolio ends the year with a value of $12.72 million after paying dividends at the end of the year to the value of $255,000. The value of the fund at the beginning of the year was $12.13 million.

b) At the same time the All Ordinaries Index ended the year at 5695 after starting at 5226.

c) A share in BHP was selling for $23.45 at the beginning of the year and selling for $27.42 at the end of the year after paying a dividend of $1.13.

2. A perpetuity with the first annual cash flow paid at the beginning of year 4 is equivalent to receiving $100,000 in 15 years time. Assume that the perpetuity and the lump sum are of equivalent risk and that j2 = 11 % pa is the appropriate interest rate. How much is the annual cash flow associated with the perpetuity?

Reference no: EM13960380

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