A growing perpetuity is currently valued $6,225.81.The next annuity payment will be $386 and the discount rate is 9 percent.What is the annuity's rate of growth?

Question

Quizplus · Accepted Answer

We can use the formula for the present value of a growing perpetuity:

PV = A / (r - g)

where PV is the present value, A is the annuity payment at time 1, r is the discount rate, and g is the rate of growth.

We know that PV = $6,225.81, A = $386, and r = 9%. Plugging these values in, we get:

$6,225.81 = $386 / (0.09 - g)

Solving for g, we get:

g = 2.80%

Therefore, the answer is C.

A Growing Perpetuity Is Currently Valued $6,225