Concept explainers
PERPETUAL NET INCOME STREAM The perpetual stream of income to be derived from the investment in a proposed new soft drink is assumed to flow continually at the rate of
P(t) = 2 te0 02t
thousand dollars/year. If the prevailing interest rate is assumed to be 5%/year compounded continuously, what is the present value of the investment?
Hint: Use the formula given in Exercise 50.
50. PERPETUAL NET INCOME STREAMS The present value of a perpetual stream of income that flows continually at the rate of P(t) dollars year is given by the formula
where r is the interest rate compounded continuously. Using this formula, find the present value of a perpetual net income stream that is generated at the rate of
P(t) = 10,000 + 4000t
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