The present discounted value of an infinite stream of payments of $5 per year when the interest rate is 20% is:
A)1.
B)5.
C)25.
D)100.

Question

Quizplus · Accepted Answer

The present discounted value formula for an infinite stream of payments is P = A/r, where P is the present value, A is the amount of each payment, and r is the interest rate. Plugging in the values given, we get P = 5/0.20 = 25. Therefore, the answer is C, $25.

The Present Discounted Value of an Infinite Stream of Payments