April 30, 2016

Homework Help: economics

Posted by Rachel on Saturday, February 5, 2011 at 5:19pm.

Nair Inc. bought a "growing perpetuity" bond. The bond will pay 631.85 dollars at the end of year 1 and the payment will increase by 2.5 percent each year forever thereafter. Assuming the interest rate is 11.26% (forever), what is the maximum amount that Nair Inc. will be able to charge for this bond if the firm put it on sale at the end of year 33? (Accuracy is set at the first decimal.)

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