Question

Consider tax rate on your house is 2%, which means you have to pay 2% of house price every year forever, and the price of your house is $200,000. Suppose i=6%, what would be the PV of the tax above?

Answer 1

Tax amount per year = 200,000 * 0.02 = $4,000

PV of the tax = A(P/A, i, n)

                     = 4,000(P/A, 6%, infinity)

                     = 4,000 / 0.06

                     = $66,666.67

Thus, the PV of the tax is $66,666.67.