In this example, an upfront investment of dollars is required in order to receive an...
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Finance
In this example, an upfront investment of dollars is required in order to receive an annual inflow of 5 dollars when the return is 5%, or =( 1. This implies that must be the value of 5 dollars received in perpetuity when the return is 5%. - Let's derive a shortcut by creating our own perpetuity - Suppose you can invest $100 in a bank account paying 5% interest per year forever - At the end of the year you'll have $105 in the bank - your original $100 plus $5 in interest - Suppose you withdraw the $5 and reinvest the $100 for another year - By doing this year after year, you can withdraw $5 every year in perpetuity
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