plz solve this question — OpenTuition Forums

Aahmad14y ago

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

Ppannanikt13y ago#1

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