Answer:
The annuity is worth $5,000 today
Explanation:
We solve using the growing perpetuity formula for present value:
[tex]Principal = \frac{C}{r - g} \\Where: \\$r = interest rate\\g = grow rate[/tex]
r = 0.06
g = 0.02
C = $200
$200/(0.06-0.02) = 200/.04 = $5,000
Answer:
$5000
Explanation:
The formular to be used is the growing perpetuity formula
PV= C/r-g
from the given information
PV=200/0.06-0.02
$5000
