If the interest rate is r and will remain r forever, then a bond that will pay 95 dollars a year forever, starting one year from now, is worth how much today? A)95/(1 + r)dollars. B)95(1 + r)dollars. C)95/r dollars. D)95/(1 + r + r² ........+ rⁿ +........)dollars. E)None of the above.

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Quizplus · Accepted Answer

The value of a perpetuity, which is a bond that pays a fixed amount forever, is calculated as the payment divided by the interest rate. Therefore, a bond that pays $95 a year forever, at an interest rate of r, is worth $95/r today.

If the Interest Rate Is R and Will Remain R