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Property taxes in a particular district are 2​% of the purchase price every year. If you just purchased a ​$150,000 ​home, what is the present value of all the future property tax​ payments? Assume that the house remains worth ​$150,000 ​forever, property tax rates never​ change, and that a 4​% interest rate is used for discounting. The present value of all the future property tax payments is

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TomShelby

Answer:

the present value of the property taxes is 75,000

Explanation:

We can determinate the present value of all the future payment using the perpetuity formula:

150,000 x 2% = 3,000 property taxes per year as this will be paid indefinitely and the cash flow are equal; it is a perpetuity.

C/r = PV

3,000 / 0.04 = PV = 75,000

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