You have the opportunity to buy a perpetuity which pays R1,000 annually.Your required rate of return on this investment is 15 percent.You should be essentially indifferent to buying or not buying the investment if it were offered at a price of

Question

Quizplus · Accepted Answer

To determine the price at which you would be indifferent to buying or not buying the perpetuity, we can use the following formula:

Price = Annual payment / Required rate of return

Plugging in the given values, we get:

Price = 1,000 / 0.15 = 6,666.67

Therefore, if the perpetuity is offered at a price of R6,666.67 or less, you should buy it. Option C is the closest to this price and is therefore the best choice.

You Have the Opportunity to Buy a Perpetuity Which Pays