Question

What is the present value of a perpetuity that offers to pay $100 next year and every year after the payment grows at 4.3%. Investments with similar risk are offering an 8% annual return.

Answer 1

Answer:

PV= $2,702.70

Explanation:

Giving the following information:

Cash flow= $100

Growth rate (g)= 4.3%

Discount rate (i)= 8%

To calculate the present value of the perpetuity, we need to use the following formula:

PV= Cf / (i - g)

PV= 100 / (0.08 - 0.043)

PV= 100 / 0.037

PV= $2,702.70