Hello,
Why do we discount 3 years at 10% for the year 4-infinity, not the 4 years at 10%?
Thank you in advance?
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Chapter 16 Q1 of the notes
9y ago#1Multiplying by 1/r gives the PV now assuming that the perpetuity starts in 1 years time.
Here the perpetuity starts in 4 years time, which is 3 years later. So multiplying by 1/r gives a value 3 years later from now i.e. in 3 years time. So we need to discount for 3 years to get back to a PV 'now'.
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