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Stream of productive services

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-Smith's farm had earned him profits of $100 per acre. The present value of the stream of productive services provided by his farm is the amount of money that he could receive right now that would be equivalent to the stream of future income. The value of this stream of profits can be found by adding up the present value (PV) of profits next year, the following year, etc. Assuming an interest rate of 5% per year, find the value of such stream of profits for 2 years.

-It turns out that no matter how far out in the future we look, the PV of the stream of profits will be calculated using the capitalized value of the constant stream of $. Using this concept, show and explain that the capitalized value of $100 over 30 years is $2,000.

Reference no: EM133063299

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