Future Perpetuity
Perpetuity start
at some future date is known future perpetuity.
Future perpetuity example
Mr. was offered perpetuity of $ 12,000, however, the payment
start after 5 years. The rate of interest in the country is 13%. Calculate the present
value?
Solution
1.
Calculate the present value at end of
year 4
= $12,000/.13
= $ 92,307
2.
Calculate the present value at year
Zero (now)
= $ 92,307 x (1.13)-4
= $ 92,307 x .6133
= $ 56,613
Tip of future Perpetuity: - if perpetuity starts at future date the
present value is calculated on year before for example in above example perpetuity
start at year 5 but present value is calculated at year end 4.
