Question

A perpetuity pays $50 per year and interest rates are 9 percent. How much would its value change if interest rates decreased to 6 percent?

Answer 1

Answer:

We conclude that its value change for 277.8$.

Step-by-step explanation:

We know that a perpetuity pays $50 per year and interest rates are 9 percent.  We calculate how much would its value change if interest rates decreased to 6 percent. We know that

9%=0.09

6%=0.06

We get

\frac{50}{0.09}=555.5

\frac{50}{0.06}=833.3

Therefore, we get 833.3-555.5=277.8

We conclude that its value change for 277.8$.