If the interest rate were 10 percent, how much would people be willing to pay for a stock that was certain to yield a $2 per share stream of net earnings continuously in the future?
A) $2
B) $10
C) $20
D) $100

Question

Quizplus · Accepted Answer

The value of a perpetuity is calculated as the annual payment divided by the interest rate. Here, the annual payment is $2, and the interest rate is 10% (or 0.10). Thus, the value is $2 / 0.10 = $20.

If the Interest Rate Were 10 Percent, How Much Would