The present value of a $100 per year perpetuity at 10% per year interest rate is $1000. What would be the present value if the payments were compounded continuously?
A) $1000.00
B) $1049.21
C) $1024.40
D) None of the above

Question

Quizplus · Accepted Answer

The present value of a perpetuity is given by the formula PV = C/r, where C is the annual payment and r is the interest rate. In this case, C = $100 and r = 10%. So, the present value of the perpetuity is $1000.If the payments were compounded continuously, the present value would be given by the formula PV = C/e^r, where e is the base of the natural logarithm. In this case, C = $100 and r = 10%. So, the present value of the perpetuity would be $1049.21.

The Present Value of a $100 Per Year Perpetuity at 10