Given an interest rate of 6

Finance Dec 27, 2020

Given an interest rate of 6.3 percent per year, what is the current value of a perpetual stream of $30,000 (annual payment) that begins 8 years from now?

Expert Solution

We will first find the value of this perpetuity 8 years from now.

= Annual payment/ interest rate

= $30,000/ 0.063 = $476,190.4762

Current value = future value/ (1+i)^n

= $476,190.4762/ (1.063)^8

= $292,088.5879

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