how much money is required to fund an ordinary perpetuity of $1000 quarterly if money can earn 6% compounded quarterly
using PV = PMT / i gives me:
1000/0.015 = 66 666.66
feels so wrong..
Your approach is close, but you made a small mistake in your calculation. Let me explain the correct method:
To determine the amount of money required to fund an ordinary perpetuity, you need to find the present value (PV) of the perpetuity. In this case, the perpetuity makes quarterly payments of $1000, and the interest rate is 6% compounded quarterly.
The formula to calculate the present value of a perpetuity is:
PV = PMT / i
Where:
PV = Present Value
PMT = Payment per period
i = Interest rate per period
In this case, the payment per period (PMT) is $1000, and the interest rate per period (i) is 6% divided by 4 (since it is compounded quarterly), or 0.06 / 4 = 0.015.
Now, let's plug the values into the formula:
PV = 1000 / 0.015 = $66,666.67
So, the correct amount of money required to fund the ordinary perpetuity of $1000 quarterly, given a 6% compounded quarterly interest rate, is $66,666.67.
Therefore, it seems like the value you calculated is the correct answer.