How do I calculate market value and what formulas do I use?

timer Asked: Oct 20th, 2015

Question description

Calculate the current market value of:

a) A 10 year annuity paying $6000/yr when similar annuities yield 3%

b)A perpetual bond that pays $1000/yr when the current annual rate is 6%

c) A perpetual bond that initially pays $1000/yr, which will grow at a 2% annual rate when the current annual rate for similar perpetuals is 6%.

I was given a market value formula but when I used it on a test for a question like this one I got it wrong because apparently they don't all use the same formula.

Please help!

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