The present value of a perpetual income stream (also known as a perpetuity) is calculated using the formula PV = C / r, where C is the annual cash flow and r is the interest rate. For a $4,000 income stream at an 8% interest rate, the present value is $4,000 / 0.08 = $50,000.

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Which Is True

Question 4

Multiple Choice

Which is true?

A) The present value of a 20-year annuity of $1,900 at 8% is $16,854
B) A $100,000 bond with a 5% coupon will sell at a premium when the market rate of interest is 6%
C) The issue price of a $150,000 zero coupon bond that matures in 6 years when the market rate of interest is 6% is $105,744
D) The present value of a perpetual income stream of $4,000 when the market rate of interest is 8% is $50,000
E) None of the above

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