A perpetuity with a first payment of $500 grows at a constant rate of 5%.If the interest rate is 7%,what is the Present Value of this perpetuity?
A)$10,000
B)$25,000
C)$7,142.86
D)$4,166.67
E)$50,000

Question

Quizplus · Accepted Answer

The present value of a growing perpetuity is calculated using the formula PV = C / (r - g), where C is the first payment, r is the interest rate, and g is the growth rate. Substituting the given values: PV = 500 / (0.07 - 0.05) = 500 / 0.02 = $25,000.

A Perpetuity with a First Payment of $500 Grows at a Constant