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Good day, Sir Moffat.
I have a question to ask:
What is the present value of $6,000 per annum first receivable immediately and thereafter in perpetuity, with interest at 9.5% per annum?
Answer: $6000*1/0.095= $63,158+$6,000= $69,158
Why did we add $63,158 and $6,000? Why didn’t we end with $63,159, isn’t that the answer?
Thank you in advance! God bless 😀
Multiplying by 1/r gives the PV of a perpetuity starting in 1 years time.
Here, there is also an immediate receipt and the PV of 6,000 receivable immediately is 6,000 and this needs adding on.
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