What is the present value (PV) of an investment that will pay $300 in one years...

Question

Question

What is the present value (PV) of an investment that will pay $300 in one years time, and $300 every year after that, when the interest rate is 4%?

a. $7,500

b. $6,000

c. $3,750

d. $4,500

Answer 1

Answer #1

This question requires application of PV of perpetuity formula, according to which

PV of Perpetuity = – PV = Present Value D = Dividend or Coupon per period r = discount rate

PV = 300 0.04

PV = $7,500 (Option A)

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Answer 2

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