The present value of a $100 per year perpetuity at 10 percent per year interest rate is $1,000. What would be the present value of this perpetuity if the payments were compounded continuously?
A)$1,000.00
B)$1,049.21
C)$1,024.40
D)$986.14

Question

Quizplus · Accepted Answer

The formula for the present value of a perpetuity with continuous compounding is:

PV = C / r

where PV is the present value, C is the annual payment, and r is the interest rate (in decimal form).

Plugging in the values given, we get:

PV = 100 / 0.1 = $1,000

Therefore, the present value remains the same whether it is compounded continuously or not. Thus, the answer is B.

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