The interest rate is 10% but the government offers you a subsidized perpetual loan for $1M at 5%. In other words, you get the $1M today and, in return, you pay the government $50,000 a year forever (you a re immortal). How much is this subsidy worth?

Answer rating: 100% (QA)

To calculate the value of the subsidy we need to determine the present value of the perpetuity ... View the full answer