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An investment will produce an annual return of $1,500 in perpetuity with the first receipt starting in 3 years’ time.
What is the PV of this perpetuity discounted at 6% ?—
I can’t do this questions and i try reading this answer for it but aslo dont understand. Help me, explain step by step .
tks in advanceGet the discount factor from 1 to infinity, which is 1/6 i.e. 1/0.06
Then subtract the total factor for the first 2 years (i.e. the annuity factor for 2 years at 6% from the tables).
The figure you are left with is the discount factor for 3 to infinity.
(There is another way as well – it gives the same answer, but the way above is the easiest and most obvious way.)
(I do not know what you mean by mock exam 2 on page 221 – I presume that is BPP, but I do not work for BPP!)
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