If the annual interest rate is i,the present value of a payment of $X to be received n years from now forever is: A) $X/(1 + i). B) $X/i. C) $X/(1 + i )ⁿ. D) $X/i ⁿ. E) none of the above.

Question

Quizplus · Accepted Answer

The formula for present value of a perpetuity is PV = X / i, where X is the payment and i is the annual interest rate. However, since the payment is received n years from now, we need to discount it by (1 + i)^n. Therefore, the present value of the payment is X / (i * (1 + i)^n).

If the Annual Interest Rate Is I,the Present Value of a Payment