plz solve this question

This topic has 1 reply, 2 voices, and was last updated 13 years ago by pannanikt.

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July 8, 2012 at 7:23 am #53714
ahmad
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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
September 9, 2012 at 2:24 pm #101848
pannanikt
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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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