Perpetuity examples

Perpetuity examples - appropriate discount rate for this...

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Present value of a perpetuity: You are given an offer to purchase a series of perpetual cash flows that will be paid to you on an annual basis. You will receive $100 per year beginning next year. The cash flows are risk free. The market risk premium is 8% and the risk-free rate is 5%. What price would you be willing to pay for this perpetuity? Perpetuity with growth: You need to price a perpetuity that will have constant growth or 4% beginning after the year 1 payment. The first cash flow will be $50, which you’ll receive one year from today. The
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Unformatted text preview: appropriate discount rate for this risky perpetuity is 14%. What is the present value of this perpetuity? Perpetuity with supernormal growth: You are considering purchasing a perpetuity as an investment. The last cash flow was $1.00. The growth rate will be 25% from now until year 1, and then 20% from year 1 to year2. Following the year 2 cash flow, the growth rate will be 5% per year. What is the value of the perpetuity if the discount rate is 10%?...
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