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Assume you receive a perpetual (i.e. permanent) payment of $9,000 and that the interest rate will...

Assume you receive a perpetual (i.e. permanent) payment of $9,000 and that the interest rate will be 8%, and that the perpetual payment will grow by 2% each year. What will be the present value of this payment?

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Answer #1

The present value of growing perpetuity is calculated using the below formula:

Present value of growing perpetuity= Payment at year 1/ Interest rate- growth rate

= $9,000/ 0.08 - 0.02

                                                         = $9,000/ 0.06

                                                         = $150,000.

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