Question

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

Answer 1

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.