How much would be willing to pay if forty-year of perpetuity

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Problem 1: You are willing to pay $31,250 now to purchase a perpetuity that will pay you and your heirs $2,500 each year, forever, starting at the end of this year (i.e. one year later). If the required rate of return does not change, how much would you be willing to pay if this were a 40-year, annual payment, ordinary annuity instead of perpetuity? Hint: you need to find the yield to maturity of the perpetuity first, then find the present value of the ordinary annuity.

Reference no: EM133006978

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