What annual payment would you have to receive in order to earn a 7.5% rate of return on a perpetuity that has a cost of $1,250?
A)$89.06
B)$93.75
C)$98.44
D)$103.36

Question

Quizplus · Accepted Answer

The formula for the present value of a perpetuity is:

PV = A / r

where PV is the present value, A is the annual payment, and r is the discount rate or rate of return.

We are given that the cost (present value) of the perpetuity is $1,250, and we need to find the annual payment required to earn a 7.5% rate of return. Substituting the given values, we get:

$1,250 = A / 0.075

A = $93.75

Therefore, the annual payment required to earn a 7.5% rate of return on a perpetuity that has a cost of $1,250 is $93.75. The best choice is B.

What Annual Payment Would You Have to Receive in Order