Question

Clarissa wants to fund a growing perpetuity that will pay $ 9 comma 000 per year to a local​ museum, starting next year. She wants the annual amount paid to the museum to grow by 6​% per year. Given that the interest rate is 9​%, how much does she need to fund this​ perpetuity?

Answer 1

$300,000.00

Step-by-step explanation:

The present value of a growing perpetuity can be computed using the below present value formula specifically meant for growing annuity:

Present value=cash flow/interest rate-growth rate

cash flow is the initial amount per year which is $9000

interest rate is 9%

growth rate of the annuity payment is 6%

present value=$9000/(9%-6%)=$300,000.00