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Suppose you buy a perpetuity-due with varying annual payments. The first 5 payments are constant...

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Accounting

Suppose you buy a perpetuity-due with varying annual payments. The first 5 payments are constant and equal to 12. Starting the 6th payment, the payments start to increase so that each year's payment is K% larger than the previous year's payment. At an annual effective interest rate of 7%, the perpetuity has a present value of 305. Calculate K, given K < 7.

ANS: 3.3

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