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What is the value of receiving $2,000/year forever starting in one year if the discount rate...

What is the value of receiving $2,000/year forever starting in one year if the discount rate is a monthly compounded APR of 7%?

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Answer #1

Annual effective rate is:

Effective annual interest rate= (1+periodic interest rate)^m   -1
rs= Stated interest rate 7.00%
m number of compoundings in a year 12
rs/m period interest rate 0.5833333%
Effective annual interest rate= (1+0.005833)^12    -1
Effective annual interest rate= 7.2290%

Value of perpetuity = 2000/7.2290% = 27,666.31

Answer is $27,666.31

please rate.

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