Final answer:
An investor would pay $833.33 for an investment that pays $100 per year perpetually at a discount rate of 12%.
Step-by-step explanation:
When calculating the present value of a perpetuity like this investment, we can use the formula PV = C / r, where PV is the present value, C is the annual payment, and r is the discount rate. In this case, the annual payment is $100 and the discount rate is 12%. If the appropriate discount rate is 12%, you are looking to find out how much an investor would be willing to pay for an investment that pays a perpetual $100 per year, which is commonly known as a perpetuity. The formula to determine the present value of a perpetuity is Present Value (PV) = Payment (PMT) / Discount Rate (r). Thus, for a payment (PMT) of $100 at a discount rate of 12%, the calculation would be:
PV = $100 / 0.12 = $833.33
Therefore, an investor would be willing to pay $833.33 for this investment.