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deferred perpetuity due

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  • deferred perpetuity due

    I also have another perpetuity problem if anyone can help:

    Find the present value of a deferred perpetuity due paying $1000 monthly if the deferred period is 5 years and the interest rate is i=0.08

    I was trying to solve this one but my answer does not seem right,

    Here is how I set it up:

    Present value = v^60* 1000 * a(infinity, .08)
    where a(infinity, .08) is a perpetuity due taken at 8%

    After solving for present value, I end up getting $133.32 which doesnt make sense becuase the person would have the $133 deferred for 5 years, but after that he is supposed to take out $1000 each month forever.

    Any help is appreciated

  • #2
    Is the 8% annual or monthly? Your annuity factor ä is calculated as if 8% is annual, but you're taking v^60 using 8% as a monthly rate.

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