Your friend promises you a perpetuity of paying you some money every year forever. If the first payment is at year 1, r = 10% and PV0 for this perpetuity is $80, what is the first payment ?

Question

Please state which formula to use, as well as step by step instructions. Thank you!

Answer 1

Perpetuity Immediate formula because payment is made at end of 1 st year

payment*(1/.10) = 80

pqyment = 80/ 10

payment = 8

Answer 2

The formula to use to calculate this answer is as follows:

Payment=pv (present value) x r (rate).

Therefore the first payment amount is $80 x 10%= $8