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Tcecarenko [31]
3 years ago
7

What's the present value of a perpetuity that pays $250 per year if the appropriate interest rate is 5%

Business
1 answer:
KengaRu [80]3 years ago
3 0

Answer:

PV of Perpetuity = $5000

Explanation:

A perpetuity is a series of cash flows that are constant, occur after equal intervals of time and are for infinite period of time or are perpetual. Thus, it is like and annuity but with an infinite time period. The formula for the present value of of perpetuity is,

PV of Perpetuity = Cash Flow  /  r

Where,

  • r is the required rate of return

PV of Perpetuity = 250 / 0.05

PV of Perpetuity = $5000

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