Perpetuity: Chris Collinge has funded a retirement investment with $250,000 earning a return of 5.75 per cent. What is the value of the payment that he can receive in perpetuity? (Round to the nearest dollar.)

Question

Quizplus · Accepted Answer

To calculate the value of a perpetuity, we use the formula:

Perpetuity Value = Annual Payment / Interest Rate

In this case, Chris has funded the investment with $250,000 and the return is 5.75%. Therefore, the annual payment he can receive in perpetuity is:

Annual Payment = $250,000 x 5.75% = $14,375

Dividing this by the interest rate, we get:

Perpetuity Value = $14,375 / 5.75% = $250,000

Therefore, Chris can receive an annual payment of $14,375 in perpetuity.

Perpetuity: Chris Collinge Has Funded a Retirement Investment with $250,000