If you are willing to pay $21,161.00 today to receive a perpetuity with the first payment occurring next year then the payment must be $______. Assume a 14.00% discount rate.

1 answer

To find the payment amount of a perpetuity given the present value, you can use the formula for the present value of a perpetuity:

\[ PV = \frac{C}{r} \]

Where:

  • \( PV \) is the present value of the perpetuity (which is $21,161.00),
  • \( C \) is the annual payment,
  • \( r \) is the discount rate (which is 14% or 0.14).

Rearranging the formula to solve for the annual payment \( C \):

\[ C = PV \times r \]

Now plug in the values:

\[ C = 21,161.00 \times 0.14 \] \[ C = 2,960.54 \]

Therefore, the payment must be $2,960.54.