What annual payment must you receive in order to earn a 6.5% rate of return on a perpetuity that has a cost of $1,250?
A) $77.19
B) $81.25
C) $85.31
D) $89.58
E) $94.06

Question

Quizplus · Accepted Answer

To find the annual payment, we need to use the formula for the present value of a perpetuity: PV = P / r. Here, PV = $1,250 (the cost), and r = 6.5% or 0.065. Solving for P, we get P = PV x r = $1,250 x 0.065 = $81.25. Therefore, the annual payment must be $81.25 to earn a 6.5% rate of return on this perpetuity.

What Annual Payment Must You Receive in Order to Earn