1. From memory, write down the perpetuity formula. Be explicit on when the first cash flow occurs.
2. What is the PV of a perpetuity paying $5 each month, beginning next month, if the monthly interest rate is a constant 0.5%/month?
3. What is the PV of a perpetuity paying $15 each month, beginning next month, if the effective annual interest rate is a constant 12.68% per year?
4. Under what interest rates would you prefer a perpetuity that pays $2 million per year beginning next year to a one-time payment of $40 million.