A perpetuity is a never-ending cash flow stream such as an annual payment of c. To value a perpetuity, a replicating portfolio can be set up by depositing an amount M in the bank and withdrawing the interest of c each year. The amount M needed to generate an annual interest of c is calculated as M = c/y, where y is the interest rate.
A perpetuity is a never-ending cash flow stream such as an annual payment of c. To value a perpetuity, a replicating portfolio can be set up by depositing an amount M in the bank and withdrawing the interest of c each year. The amount M needed to generate an annual interest of c is calculated as M = c/y, where y is the interest rate.
A perpetuity is a never-ending cash flow stream such as an annual payment of c. To value a perpetuity, a replicating portfolio can be set up by depositing an amount M in the bank and withdrawing the interest of c each year. The amount M needed to generate an annual interest of c is calculated as M = c/y, where y is the interest rate.
stream, e.g. an annual payment of c How do we value such a thing? Set up a replicating portfolio Lets deposit some amount of money, M, in the bank and withdraw the interest every year How large would M have to be in order to give an interest of c? My c M