A perpetuity pays $50 per year and interest rates are 9 percent. How much would its value change if interest rates decreased to 6 percent?
A) $150.00 increase
B) $150.00 decrease
C) $277.78 increase
D) $277.78 decrease

Question

Quizplus · Accepted Answer

The value of a perpetuity is calculated as the annual payment divided by the interest rate. At 9%, the value is $50 / 0.09 = $555.56. At 6%, the value is $50 / 0.06 = $833.33. The difference is $833.33 - $555.56 = $277.77, which rounds to $277.78 increase.

A Perpetuity Pays $50 Per Year and Interest Rates Are