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.)