I am wondering how one solve the Present Value of a perpetuity when the monthly payment is given (say $600) and the interest rate is given % per annum compounded monthly (say 6%) when the first payment is made at at the start for the first period.
I assume the following:
PMT = $600
i = 0.06/12 = 0.005
This is urgent and the person who gives me the right answer will be thanked
2007-03-12 01:10:55 · 4 answers · asked by Mike J 5 in Business & Finance ➔ Investing
Perpetuities are also known as consols, perpetual annuities.
They come under the concept of Time-value of money
2007-03-12 01:22:58 · update #1
Since the first payment is made at the start of the first period, this is worth 600. All the remaining payments are indeed worth 120,000 making a value of 120,600. This sounds a bit odd, because you would pay 120,600, but get back 600 immediately. Technically, the way you worded it this seems however correct.
2007-03-12 06:02:00 · answer #1 · answered by Cheanea 3 · 1⤊ 0⤋
A periodic amount receivable indefinitely is called a perpetuity, although few such instruments exist. A perpetuity is an infinite geometric series which reduces to PV = C / i, where C is the periodic cash flow and i the periodic rate of interest.
So $600/.005 = $120,000
2007-03-12 05:23:04 · answer #2 · answered by fastfrank7 5 · 1⤊ 0⤋
PV= $120,000
pmt/rate = PV
2007-03-12 02:58:33 · answer #3 · answered by Anonymous · 1⤊ 0⤋
PMT/i = 600/0.005=120000,
2007-03-12 06:43:04 · answer #4 · answered by Mathew C 5 · 1⤊ 0⤋