Question

If you were offered an investment that will pay you $19415 every year forever, and you...

If you were offered an investment that will pay you $19415 every year forever, and you require an 8.9% return on investments with the same levels of risk, how much are you willing to invest today? Answer and round to the nearest cent.

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Answer #1
Solution:
Willing to invest today = $218,146.07
Working Notes:
Since, cash flow will be every year forever means the cash flow is of perpetual in nature , Hence the maximum amount that we will invest today is the present value of the perpetual cash flows.
Amount willing to invest today = Annual cash flows / Required rate of returns
= $19,415/8.90%
=$218,146.0674
=$218,146.07
Please feel free to ask if anything about above solution in comment section of the question.
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