You are evaluating a perpetuity that pays $5,000 annually. If the discount rate is 8%, what is the present value of this perpetuity?

Question

BlackTom AI · Accepted Answer

To evaluate the perpetuity, recall the standard formula for the present value of a perpetuity: PV = Payment / Discount rate.

Option 1: $62,500. Here, 5000 / 0.08 = 62500, which matches the perpetuity PV formula exactly. This option aligns with the fundamental relationship between payment, rate, and present value.

Option 2: $50,000. This would correspond to a discount rate of 5000 / 50000 = 0.10 (or 10%). Since the given discount rate is 8%, this value does not reflect the stated rate.

Option 3: $75,000. This would imply a discount rate of 5000 / 75000 ≈ 0.0667 (about 6.67%). Again, this deviates from the given 8% rate.

Option 4: $100,000. This would correspond to a discount rate of 5000 / 100000 = 0.05 (5%). Once more, this is inconsistent with the 8% discount rate provided.

In summary, only the calculation using PV = 5000 / 0.08 yields a present value of 62,500, while the other options arise from applying a different discount rate than the one specified.

MSB-250-300-002 Proctored Midcourse Exam 1

You are evaluating a perpetuity that pays $5,000 annually. If the discount rate is 8%, what is the present value of this perpetuity?

查看解析

登录即可查看完整答案

类似问题

A project generates $100 forever with certainty and cash flows grow at the inflation rate. The nominal interest rate is 4% (real interest rate = 2% and inflation = 2%). Ignore taxes. What is the project’s value?

A bond with unlimited maturity (a perpetuity bond) has a face value of $1,000, and a coupon rate of 5%. If the market interest rate is 10%, what is the current market price of this bond?

The cost of preferred stock is equivalent to the:

A preferred stock pays a dividend of $3.50 in perpetuity. If the return required by shareholders is 11%, what is the price per share for this preferred stock?

National Trucking has paid an annual dividend of $1 per share on its common stock for the past 15 years and is expected to continue paying a dollar per share long into the future. Given this, one share of the firm's stock is:

The Asian Tiger pays a constant annual dividend of $1.18 per share. How much are you willing to pay for one share if you require a 15 percent rate of return?

更多留学生实用工具

考试浏览器助手

风格化写作助手

论文查重助手

文献引用助手

课堂转译助手

课堂笔记助手

Quiz搜索助手

学校历年真题

智能刷题助手

智能匹配练习

希望你的学习变得更简单