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?© BrainMass Inc. brainmass.com June 3, 2020, 6:32 pm ad1c9bdddf
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% = ...
The solution determines how to calculate the value of a perpetuity.