rkapoor

I see big confusion here. Let's make it clear. Perpetuity starts at the end of the 4 year, but we have to discount with N = 3 because perpetuity formula would find value ot the perpetuity at the end of year 3. This is the same as with simplest perpetuity, which starts at the end of first year and we find the value of perpetuity at the time 0 by using perpetuity formula. And time 0 is one period earlier than the end of 1 year (when perpetuity starts). This is crucial.