Explore BrainMass

value of a perpetuity

You are to receive $1500 forever from the federal government as the winner of the national fiscally prudent and awareness contest. The government also has provided you with the option of choosing $1700 over the next 30 years. Payments are to be received semi-annually and if the market rate of interest is 8% what is the value of the two options?

I am having trouble with undertsanding this problem

Can you break it down for me?

Solution Preview

The first one is a perpetuity. You know how to calculate the value of a perpetuity.

PV= Perpetuity cash flow (CF) / Interest rate (r) = 1500/8% = ...

Solution Summary

how to calculate the value of a perpetuity