Answer in Microeconomics for rita #112872
April 21st, 2023
To find the value of the perpetuity at t= 7, we first need to use the PV of a perpetuity equation. Using this equation we find:
PV = $2,600 / 0.042 = $61,904.76.
Remember that the PV of a perpetuity (and annuity) equations give the PV one period before the first payment, so, this is the value of the perpetuity at t= 14.
To find the value at t = 7, we find the PV of this lump sum as:
“PV = 61,904.76 / 1.042^7 = 46,414.11.”