Asked by Manpreet Dhaliwal on May 20, 2024
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Calculate the present value of a perpetuity that will pay out $7,500 every six months. The first payment will be made four years from now. The interest rate earned is 8.6% compounded semi-annually.
A) $174,419
B) $129,898
C) $124,543
D) $119,563
E) $104,826
Compounded Semi-Annually
A frequency of interest calculation where the interest is added to the principal every six months, resulting in earning interest on interest in the second half of the year.
Present Value
The current value of a future sum of money or stream of cash flows, given a specified rate of return.
Perpetuity
A type of financial instrument that pays a fixed amount of cash flows indefinitely, without a maturity date.
- Estimate the present-day value of perpetuities and annuities across differing intervals of compounding.
- Interpret the impact of different interest rates and compounding frequencies on investments and payments.
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Learning Objectives
- Estimate the present-day value of perpetuities and annuities across differing intervals of compounding.
- Interpret the impact of different interest rates and compounding frequencies on investments and payments.
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