The present value of an annuity that pays $100 each year indefinitely (i.e., a perpetuity)is $2, 000 if the interest rate is 5 percent.

Question

Quizplus · Accepted Answer

The present value of a perpetuity can be calculated using the formula PV = PMT / r, where PMT is the constant payment (in this case $100), and r is the interest rate. Plugging in the numbers, we get PV = $100 / 0.05 = $2,000. Therefore, the statement is true.

The Present Value of an Annuity That Pays $100 Each