plz solve this question

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  • Avatar of ahmad
    • Topics: 1
    • Replies: 1

    Ms sbnda has recently won a
    competetion where she has choce
    between recived 5000 now or an annual
    amount forever atarting now (ie a level
    perpetuity starting immediately) the intrest
    rate is 8% per annum what would be the
    value of the annual perpetuity

    Avatar of pannanikt
    • Topics: 8
    • Replies: 79

    I think you need to convert the formula PV = A/ r where PV is present value of the perpetuity, A – amount of periodic payment, and r is interest rate.
    So from your question it is 5000 = A/0.08, then A = 5000x 0.08 = 400

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