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The present value of a perpetuity paying 1 every two years with first payment due immediately is 7.21 at an annual effective rate of i. Another perpetuity paying R every three years with the first payment due at the beginning of year two has the same present value at an annual effective rate of i + 0.01.
Calculate R.
(A) 1.23
(B) 1.56
(C) 1.60
(D) 1.74
(E) 1.94

Respuesta :

shallomisaiah19

Answer:

Step-by-step explanation:

image attached (representing first perpetuity on number line)

Present value is 7.21

[tex]7.21=\frac{1}{1-u^2} \\\\1-\frac{1}{7.21} =u^2\\\\\frac{6.21}{7.21} =(1+i)^{-2}\\\\(1+i)^2=\frac{7.21}{6.21} \\\\(i+1)=\sqrt{\frac{7.21}{6.21} }\\\\ i=\sqrt{\frac{7.21}{6.21} } -1\\\\=0.77511297[/tex]

image attached (representing second perpetuity on number line)

we have ,

[tex]7.21=\frac{Ru}{1-u^3}[/tex]

Here,

[tex]V=\frac{1}{1+i}[/tex]i

i = 0.077511297 + 0.01

[tex]\therefore V =\frac{1}{1.087511295} =(1.087511297)^-^1\\\\7.21=\frac{R(1.087511297)^-^1}{1-(1.087511297)^-^3} \\\\7.21=4.132664645R\\\\R=\frac{7.21}{4.132664645} \\\\R= 1.7446370\approx1.74[/tex]

Therefore, value of R is 1.74

Ver imagen shallomisaiah19
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