How much would the value of a perpetuity

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Reference no: EM132005206

Question: How much would the value of a perpetuity that paid $5,000, beginning one year from today, change if the first payment was to be received immediately? Assume the appropriate annual interest rate is 6%.

a. The value would increase by $2,500.

b. The value would increase by $5,000.

c. The value would increase by $5,600.

d. The value would increase by $6,000.

e. There would be no change in value. If, in the preceding question, the bank allowed you to accrue the monthly interest payments, adding the monthly interest to the beginning-of-month balance, how much would you owe at the end of the year? (Hint: You can find the EFF% and apply that rate to the amount borrowed to find the FV.)

Reference no: EM132005206

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