Your great, great aunt just passed away at the age of 91 and left you in her will.You will receive 100 British bonds that pay interest forever.The amount of annual interest payments that you will receive is $5000.If you could invest your money at 4.25%, how much are these bonds worth today?

Question

Quizplus · Accepted Answer

The value of these bonds can be calculated using the formula for the present value of a perpetuity: PV = C / r, where C is the annual interest payment and r is the interest rate. Here, C = $5000 and r = 4.25% or 0.0425 in decimal form. Thus, PV = $5000 / 0.0425 = $117,647.

Your Great, Great Aunt Just Passed Away at the Age