Perpetuity question question

lxwarr30

One of the question I have encountered uses N=3 to discount present value of perpetuity when it is paid exactly four years from today. Just FYI, funds are available and deposited today and we are calculating present value to be deposited for the given rate and perpetuity amount. Shouldn't we be using 4 years to discount?

bapswarrior

Everything is ok here. If perpetuity starts 4 yrs from now, then you have to discount using N = 3 in order to find present value.

cyber21

optiix Wrote:
-------------------------------------------------------
> Everything is ok here. If perpetuity starts 4 yrs
> from now, then you have to discount using N = 3 in
> order to find present value.


Hi Optix, Could you tell us the reason why should you have 3 rather than 4?

kamara5

sgupta0827 Wrote:
-------------------------------------------------------
> optiix Wrote:
> --------------------------------------------------
> -----
> > Everything is ok here. If perpetuity starts 4
> yrs
> > from now, then you have to discount using N = 3
> in
> > order to find present value.
>
>
> Hi Optix, Could you tell us the reason why should
> you have 3 rather than 4?


If it starts 4 years from today, that is the same as it starting at the end of year 3, which is why you would use N=3 instead of 4.

btcapital

Pretty much what Oyster said as well, 'four years from today' is the same as 'at the end of year three'

Hope it helps

draz

ok maybe I'm totally losing the plot here, but I can't see how "four years from today" is the same as "at the end of year three". I've drawn a timeline and everything.

I agree that the fourth year STARTS at the end of year three, but ""four years from today" means there has to be four completed years, right?

smartpants

tried to delete my posts but can't....didn't really read the question right, and my answer was obviously wrong.........sorry

spartanag07

What are we upto? I see DS stepped back. What about others? 3 or 4?

ramdabom

i'm pretty sure max is correct, but as is evident from my other post, my brain is fried from the past multiple hours of studying

cchang

I think some ppl are mixing up between an annuity due, and a regular annuity.

Four years from today is an Annuity Due

( N=4, iff your calc in BGN mode in TI Calc).
(N=3, iff your calc in END mode in TI Calc).



No other difference, will yield the same result.