When r = 7.8%
PV = $130/7.8% = $1,666.67
When r = 9.3%
PV = $130/9.3% = $1,397.85
Change in Value = $1,397.85 - $1,666.67 = -$268.82 (Answer)
The value decreased. This is because PV of perpetuity is inversely related to interest rate, when the interest rate increases, PV of perpetuity decreases.
Problem 5-27 Present Value of a Perpetuity (LG5-5) A perpetuity pays $130 per year and interest...
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