The difference between the present value of a perpetuity that pays $250 every year and a perpetuity that pays $500 every year when the annual rate of discount is 5% is
A)$500.
B)$750.
C)$5,000.
D)$7,500.

Question

Quizplus · Accepted Answer

The present value of a perpetuity is calculated using the formula PV = P / r, where P is the payment per period and r is the discount rate. For the $250 perpetuity, PV = $250 / 0.05 = $5,000. For the $500 perpetuity, PV = $500 / 0.05 = $10,000. The difference is $10,000 - $5,000 = $5,000.

The Difference Between the Present Value of a Perpetuity That