Question

A perpetuity pays $1,850 at the end of each year with the first payment occurring one year from today. If the discount rate is 10%, what is the present value of the perpetuity? Answer Format: Enter your answer as a number rounded to 2 decimal places. An answer of 23.456 would be entered as 23.46.

Answer 1

The present value of the perpetuity paying $1,850 annually at a discount rate of 10% is $18,500.00.

Step-by-step explanation:

To calculate the present value of a perpetuity, we use the formula:

Present Value = Annual Payment / Discount Rate

In this case, the annual payment is $1,850 and the discount rate is 10%. Plugging in these values, we get:

Present Value = $1,850 / 0.10 = $18,500

Therefore, the present value of the perpetuity is $18,500.

The perpetuity in question pays $1,850 annually with a discount rate of 10%. To calculate the present value of a perpetuity, you use the formula PV = PMT / i, where PV is the present value, PMT is the annual payment, and i is the discount rate. Using the given figures, the present value of the perpetuity is $1,850 / 0.10, resulting in a present value of $18,500.00.