Answer:
The present value of the perpetuity is $12,500.
Step-by-step explanation:
A perpetuity can be described as periodic payments that receivable indefinitely or forever.
The formula for calculating the the present value of a perpetuity is as follows:
PV of perpetuity = C / i .......................... (1)
PV of perpetuity = Present value of perpetuity = ?
C = Cash flow or annual payments = $1,000
i = Nominal rate = 8.00%, or 0.08
Substituting the values into equation (1), we have:
PV of perpetuity = $1,000 / 0.08
PV of perpetuity = $12,500
Therefore, the present value of the perpetuity is $12,500.