A tall starbucks coffee costs $1.65 a day. of the bank’s daily interest rate is 0.01%, compounded daily, and if the starbucks price never changed, what would an endless, inheritable free subscription to one starbucks coffee per day be worth today
This problem requires the equation for perpetuity. Since the
problem asks for the present value for an infinite period subscription for one
Starbucks coffee, the equation would be PV= A/i wherein A is the price of 1 cup
of coffee which is $1.65. The interest rate can be computed by using the
equation i= (e^rate)-1. The interest rate computed is 1.0001x10^-4. The present
value is $16499.18.
