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    value of a perpetuity

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    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?

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    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

    The solution determines how to calculate the value of a perpetuity.