1. The rate does not change
2. The first payment is one period away
3. The periodic payment does not change
You have been asked to value an annuity that pays out $10 at the end of every year for the next 5 years (time 1 to time 5). However, you have not been given the appropriate discount rate to use. Fortunately, you have found the following investment opportunities being sold in the market. The price for a perpetuity which pays out $10 each year (starting at the end of the year) is currently $85. There is a second delayed perpetuity which you can purchase today for $120 which will pay $20 per year, for eternity, but who’s first payment isn’t made until end of the 6th year from now (time 6).
