You will receive $75 annually for as long as you live (i.e., perpetuity or preferred stock.) For these kinds of payments, the going rate of interest is 8%. You would have to pay 6 for this stream.
A security that pays for an endless period of time is known as a perpetuity. A perpetual sequence of similar cash flows is referred to as perpetuity in the finance industry. There are only a few perpetuities in use right now. The terms "perpetuity" refer to real estate, "particular types of bonds," and "dividend-paying equities."
It can be computed by taking the annual interest or dividend payment amount and dividing it by the security's current market value, then multiplying the result by 100.
[tex]75*8 / 100= 6[/tex]
An amount of money today is worth more than an equal amount in the future, according to the idea of present value (PV).The formula for calculating an annuity's present value is PV = the sum of each individual payment's cash amount times [tex]P = PMT * [1 – [ (1 / 1+r)^n] / r][/tex] where P is the present value of your stream of annuities. PMT stands for Per Monthly Transaction. Rate of interest or discount, r.
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