What's the rate of return you would earn if you paid $950 for a perpetuity that pays $85 per year?
A)6.52%
B)7.25%
C)8.95%
D)9.84%

Question

Quizplus · Accepted Answer

The perpetuity formula is: PV (present value) = C (annual payment) / r (discount rate). 
In this case, we know that the PV (present value) is $950, and the C (annual payment) is $85. 
Plugging in the numbers, we get: 
$950 = $85 / r 
Solving for r, we get: 
r = $85 / $950 = 0.0895 or 8.95%
Therefore, the rate of return earned is 8.95%. The closest answer choice to this is C.

What's the Rate of Return You Would Earn If You