What is perpetuity
formula?
The formula for calculating the perpetuity is as under
= Installment per year/Discount Rate
The installment per year is divided by the discount rate
Example of perpetuity
Formula
Mr. C is offered an amount of $ 6,000 as perpetuity for 100
years. What is perpetuity present value, if the interest rate in the country is
14%?
Solution
Perpetuity is installment forever .in this case 100 year may
be deemed as forever because the normal investment plan does not exceed 30 year
due to demographic. Therefore perpetuity formula may be used in this example.
|
Installment
|
$6,000
|
|
Discount Rate
|
14%
|
|
Present Value
|
42,857
|
|
|
|
