If you have a perpetuity from T=0 valued at PV=$1,000, and the same cash flow stream results in a perpetuity starting from T=3 valued at $500, how much is the annuity from T=0 until T=3 worth, assuming r=10%?

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Quizplus · Accepted Answer

The perpetuity from T=0 is valued at $1,000, and the perpetuity starting from T=3 is valued at $500. The difference in present values ($1,000 - $500 = $500) represents the present value of the annuity from T=0 to T=3.

If You Have a Perpetuity from T=0 Valued at PV=$1,000