I need to find the present value of the growing continuously compounded perpetuity. The question is: Suppose you receive a payment of 4,000 one year from now, but in year 2 the payment will have grown by 1.8% to 4,000 times (1 + 1.8/100), and in year 3 it will have grown by another 1.8%, so that you receive 4,000 times (1 + 1.8/100)^2, and so on into perpetuity. Note that this is compound growth, not linear.

Given an interest rate of 3.2% continuously compounded, what is the present value of these cash flows, to the nearest $0.01?

I am using PV of perpetuity formula with a compounded interest and getting 280488.96

The correct answer should be 275529.43

What am I doing wrong?

  • 1
    $\begingroup$ Please use MathJax $\endgroup$
    – Philipp
    Nov 11, 2020 at 19:20
  • $\begingroup$ If you need help formatting math on this site, here's a tutorial $\endgroup$
    – saulspatz
    Nov 11, 2020 at 19:33


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