So, we have this simple formula for computing the current value of any perpetual stream of revenue. If the value is V, I is the decimal value of the interest rate and R is the annual stream of revenue or profit the formula is:

V = R/I

Let's use this formula to estimate what profits are for New York cabbies if they're willing to pay over $200,000 for a medallion? Let's suppose that interest rates are about 5% and are expected to be for the foreseeable future and that no other factors are involved. We have:

       200,000 = R/0.05
0.05 x 200,000 = R
        10,000 = R
  
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