Recall the algebraic formula for a convergent geometric progression:

for any fraction Kless than 1. If you set K = 1 / (1 + i), can you verify the present-value formula for a permanent income stream, V = $N/i ? Provide an alternative proof using common sense. What would b e the value of a lottery that paid you and your heirs $5000 per year forever, assuming an interest rate of 6 percent per year?

Transcribed Image Text:

1+K+K, + ...-斉 1-K