Answered: Explain the term Present Value of…

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter9: The Basic Tools Of Finance

Section9.1: Present Value: Measuring The Time Value Of Money

Problem 1QQ

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Explain the term Present Value of Perpetuities?

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Answer -

Present Value of Perpetuities - It is the cash flow which continue indefinitely. It is current value of firm's expected cash flow in the future.

Example -

1. Renting a property under this owner of property can expect infinite cash flow . As owner can always rents the property .

2. Returns from stock as company can exist indefinitely so, it can pay returns to it's stock holders

3. Returns on savings as saving accounts give interest payments on savings as bank can operate indefinitely so account holder can take benefit from it

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