You are offered a series of monthly payments of $10, continuing forever. If you deposit these at a nominal interest rate of 12%, compounded monthly, what is the present worth of the series?
A)$120
B)$1000
C)$1200
D)$1500
E)infinite

Question

Quizplus · Accepted Answer

The present worth of a perpetuity (a series of payments that continues forever) can be calculated using the formula PV = PMT / i, where PV is the present value, PMT is the monthly payment, and i is the monthly interest rate. With a 12% annual interest rate compounded monthly, the monthly interest rate is 1% or 0.01. Therefore, the present worth is $10 / 0.01 = $1000.

You Are Offered a Series of Monthly Payments of $10