Stuart Weddie's father is 55 years old and wants to set up a cash flow stream that would be forever
Stuart Weddie's father is 55 years old and wants to set up a cash flow stream that would be forever. He would like to receive $15,000 every year, beginning at the end of this year. If he could invest in account earning 9 percent, how much would he have to invest today to receive his perpetual cash flow? (Round to the nearest dollar.)
$200,000
$222,222
$135.200
$166,667
Homework Answers
Amount required each year = P = $15000
Required Rate of Return = r = 9%
Let the amount invested today be PV
Hence, PV = P/(1+r) + P/(1+r)2 + ..... = P/r = 15000/0.09 = $166,667
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Stuart Weddie's father is 55 years old and wants to set up a cash flow stream that would be forever
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