Question

In a market, the average market return is 0.1 per period. There is a machine that generates 100 $ return each period. If the machine does not depreciate and it can work for infinite time, what is the machine’s present discounted value?

Answer 1

Here the market return = 0.1 per period = 10 % per period

Machine generates a return of $ 100 each time period

Therefore we can write this as follows

Since, raised to power infinity therefore it would be approximately equal to zero.

With the given information we get

Present value = $ 1,000

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