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Assume the annual interest rate is 6%. Calculate the value of an investment that pays $100 every two years, starting two years from now and continuing forever.

A) Assess
B) Compute
C) Evaluate
D) Predict

1 Answer

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Final answer:

The present value of the investment that pays $100 every two years, starting two years from now and continuing forever, is $1,667.

Step-by-step explanation:

To calculate the present value of an investment that pays $100 every two years, starting two years from now and continuing forever, we can use the formula for the present value of an annuity.

The formula for the present value of an annuity is given by PV = P * (1 - (1 + r)^(-n))/r, where PV is the present value, P is the periodic payment, r is the interest rate per period, and n is the number of periods.

In this case, the periodic payment is $100, the interest rate is 6% (or 0.06 as a decimal), and the number of periods is infinite. Using the formula, the present value of the investment is $1,667.

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