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(3) A perpetuity has annual payments. The first payment is for $320 and then payments increase by $30 each year until they become level at $980. Find the value of this annuity at the time of the first payment using an annual effective interest of 4%.

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Answer and Explanation:

The answer is attached below

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Answer:

The value of the annuity $19,591.87

Explanation:

I have discounted all relevant cash flows to present value using the discounting factor 1/(1+r)^N where r is the rate of return of 4% and N is each relevant year that the amount received.

Find attached for details, note the formula used for terminal value at the end of the computation

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