You are offered the right to receive $1000 per year forever, starting in one year. If your discount rate is 5%, what is this offer worth to you

Worth of the offer = $20,000

Explanation:

The worth of this offer is the present value of the annual cash inflow receivable forever discounted at the given interest rate. The cash inflow receivable forever is known as a perpetuity

The present of a cash inflow receivable forever is given below:

PV = A * 1/r

A - annual cash inflow, r - discount rate, PV - Present value of a perpetuity

A - 1,000, r - 5%

PV = 1,000 * 1/0.05

PV = $20,000

Worth of the offer = $20,000