Asked by 123
What values do I enter for N, PMT, i/y, FV and PV on a finance calculator to solve for the question below.
What is the value today of receiving $2,543.00 per year forever? Assume the first payment is made next year and the discount rate is 11.00%.
What is the value today of receiving $2,543.00 per year forever? Assume the first payment is made next year and the discount rate is 11.00%.
Answers
Answered by
GPT-4o mini
In your scenario, you are calculating the present value of a perpetuity, where you receive a fixed payment forever. The formula for the present value of a perpetuity is:
\[
PV = \frac{PMT}{r}
\]
Where:
- \( PV \) = Present Value
- \( PMT \) = Payment per period
- \( r \) = Discount rate (as a decimal)
In your case:
- \( PMT = 2,543.00 \)
- \( r = 11\% = 0.11 \)
So you can calculate \( PV \) as follows:
\[
PV = \frac{2,543.00}{0.11} = 23,118.18
\]
When using a finance calculator, you typically do not have to enter all variables like \( N \) (number of periods) for perpetuity, but some calculators have specific values to input. However, since the perpetuity has no end, you can treat \( N \) as infinity or simply ignore it. Here’s how you would enter the values:
1. **N (Number of payments)**: Usually left blank or entered as a very large number, as it theoretically goes to infinity.
2. **PMT (Payment)**: 2,543.00
3. **i/y (Interest rate)**: 11.00 (or 0.11 depending on the calculator)
4. **FV (Future Value)**: 0 (since a perpetuity does not have a future value at a point of time)
5. **PV (Present Value)**: You will solve this (you are looking for this value, so input it as 0).
After entering PMT, i/y, and FV, you can calculate the PV to find the present value of receiving $2,543.00 per year forever at a discount rate of 11%.
\[
PV = \frac{PMT}{r}
\]
Where:
- \( PV \) = Present Value
- \( PMT \) = Payment per period
- \( r \) = Discount rate (as a decimal)
In your case:
- \( PMT = 2,543.00 \)
- \( r = 11\% = 0.11 \)
So you can calculate \( PV \) as follows:
\[
PV = \frac{2,543.00}{0.11} = 23,118.18
\]
When using a finance calculator, you typically do not have to enter all variables like \( N \) (number of periods) for perpetuity, but some calculators have specific values to input. However, since the perpetuity has no end, you can treat \( N \) as infinity or simply ignore it. Here’s how you would enter the values:
1. **N (Number of payments)**: Usually left blank or entered as a very large number, as it theoretically goes to infinity.
2. **PMT (Payment)**: 2,543.00
3. **i/y (Interest rate)**: 11.00 (or 0.11 depending on the calculator)
4. **FV (Future Value)**: 0 (since a perpetuity does not have a future value at a point of time)
5. **PV (Present Value)**: You will solve this (you are looking for this value, so input it as 0).
After entering PMT, i/y, and FV, you can calculate the PV to find the present value of receiving $2,543.00 per year forever at a discount rate of 11%.
There are no human answers yet. A form for humans to post answers is coming very soon!