Question

What is the present value of a $400 perpetuity if the interest rate is 7%? If interest rates doubled to 14%, what would its present value be? Round your answers to the nearest cent.

Answer 1

Answer:

present value = $57.14.28

present value = $2857.13

Explanation:

given data

perpetuity value  = $400

interest rate = 7% = 0.07

interest rate = 14% = 0.14

to find out

What is the present value

solution

we get her present value that is express as

present value = $\frac{perpetuity}{rate}$   ............1

put here value for rate 7% and 14%

present value = $\frac{400}{0.07}$

present value = $57.14.28

and

present value = $\frac{400}{0.14}$

present value = $2857.13