Question

If you receive a fixed amount of money per year ( M=$4,400 as annuity) and the interest you could earn is 3% (I=3% (.03)) Over a long lifetime what would be the present value of this money ( the perpetuity) be worth— an approximation?

Answer 1

Based on the amount that is received per year and the interest one could earn, the present value is $146,667

The present value of a perpetuity is calculated as follows:

= Cash flow per year / Interest per year

Solving would give:

= 4,400 / 3%

= $146,667

In conclusion, the present value would be $146,667.

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