Question

What is the present value of a ​$300 perpetuity discounted back to the present at 8 ​percent? Question content area bottom Part 1 The present value of the perpetuity is​ $ enter your response here. ​ (Round to the nearest​ cent.)

Answer 1

The present value of a $300 perpetuity discounted at an 8 percent interest rate is $3,750. This is calculated using the perpetuity present value formula PV = P / r.

Step-by-step explanation:

The question asks about the present value of a ​$300 perpetuity when discounted at an 8 percent interest rate. To find the present value of a perpetuity, we use the formula PV = P / r, where PV is the present value, P is the payment per period, and r is the interest rate per period. In this case, we have P = $300 and r = 0.08 (which is 8 percent as a decimal).

Substituting these values into the formula gives us PV = $300 / 0.08, which equals $3,750. Therefore, the present value of a $300 perpetuity discounted back to the present at 8 percent is ​$3,750.