Question

Find the annual interest rate that would create a perpetual cash flow stream of $15,000 when the present value of the asset is $100,000. Multiple Choice

A. 0.15 percent
B. 0.1765 percent
C. 1765 percent
D. 0 15 percent

Answer 1

The annual interest rate that would create a perpetual cash flow stream of $15,000 when the present value of the asset is $100,000 is 15%. Hence, the correct answer is option (A).

Step-by-step explanation:

To find the annual interest rate that would create a perpetual cash flow stream of $15,000 when the present value of the asset is $100,000, we can use the formula for present value: PV = CF / r.

Where PV is the present value, CF is the cash flow, and r is the interest rate.

Plugging in the values, we get 100,000 = 15,000 / r.

Solving for r, we find that r = 15,000 / 100,000 = 0.15 or 15%.