In your scenario, you are calculating the present value of a perpetuity, where you receive a fixed payment forever. The formula for the present value of a perpetuity is:
\[ PV = \frac{PMT}{r} \]
Where:
- \( PV \) = Present Value
- \( PMT \) = Payment per period
- \( r \) = Discount rate (as a decimal)
In your case:
- \( PMT = 2,543.00 \)
- \( r = 11% = 0.11 \)
So you can calculate \( PV \) as follows:
\[ PV = \frac{2,543.00}{0.11} = 23,118.18 \]
When using a finance calculator, you typically do not have to enter all variables like \( N \) (number of periods) for perpetuity, but some calculators have specific values to input. However, since the perpetuity has no end, you can treat \( N \) as infinity or simply ignore it. Here’s how you would enter the values:
- N (Number of payments): Usually left blank or entered as a very large number, as it theoretically goes to infinity.
- PMT (Payment): 2,543.00
- i/y (Interest rate): 11.00 (or 0.11 depending on the calculator)
- FV (Future Value): 0 (since a perpetuity does not have a future value at a point of time)
- PV (Present Value): You will solve this (you are looking for this value, so input it as 0).
After entering PMT, i/y, and FV, you can calculate the PV to find the present value of receiving $2,543.00 per year forever at a discount rate of 11%.
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