Let's say there is an asset that produces $1000/month. There is a limited amount of them in total, let's say 1000 of them (each generating $1000/month). No more can be printed or generated.

This asset requires absolutely no maintenance, no supervision, no time investment, nothing. You just buy it and as long as you have it - it pays you $1000/month.

No risk of losing, getting stolen or confiscated by the government.

You can buy or sell this asset as easy as a company's share on stock exchange or just as easy as exchanging money to cryptocurrencies. So liquidity is super high.

What is a good way/formula to determine this asset's price?

  • Is this just another way to formulate the question that you deleted? – D Stanley Aug 11 '17 at 21:26
  • @DStanley yeah man, saw your answer, thanks, but thought I formed it incorrectly. This is just reformulation of the same thing. – Gintas_ Aug 11 '17 at 21:27
  • OK I misread your other question. I think you formulated it fine so that's my bad. – D Stanley Aug 11 '17 at 21:27
  • Looking up the value of a perpetuity would be a good place to start... – DJohnM Aug 12 '17 at 5:31

The simplest way is just to compute how much money you'd have to have invested elsewhere to provide a comparable return. For example, if you assume a safe interest rate of 2.3% per year, you would need to have about $520,000 to get $1,000/month.

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  • so you are saying, this hypothetical asset is worth $520k? – Gintas_ Aug 11 '17 at 21:31
  • If you think the long term, no risk interest rate is 2.3%. I think that's a reasonable value but others can disagree. – David Schwartz Aug 11 '17 at 21:45
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    Let us continue this discussion in chat. – David Schwartz Aug 11 '17 at 21:52
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    Actually the hypothetical investment would be worse than the 2.3% bank account, because the bank account will grow by compounding if the $1000 is left in the account each month. With no compounding the investment will eventually be worthless. – Victor Aug 12 '17 at 9:18
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    David - respectfully, you never actually offer the calculation. $1000/mo is $12K/yr. we usually quote interest on an annual basis. You chose 2.3%. I respect the thought behind it, but the question is theoretical and if we choose 2.5%, the math is easy - $12000/.025 is $480K easy head math as .025 = 1/40. At 2%, 12000/.02= $600K. – JTP - Apologise to Monica Aug 12 '17 at 13:23

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