Perpetuity Formula
Present
Value = Installment per year/Discount Rate
Perpetuity Formula Example
A Company has offered a perpetuity plan of $ 60,000 per year.
Rate of discount is 12%. Calculate the present value of perpetuity
Solution
Perpetuity
Formula
|
Installment Plan per year
|
$ 60,000
|
|
Interest Rate
|
12%
|
|
Present Value of future installment
|
$ 500,000
|
Present
value of perpetuity is $ 500,000 which means that a person can take $ 500,000
now instead of opting for receiving $ 60,000 per annul forever.
