What is the present value of an indefinite annual payment of £20, where the discount rate is 10 per cent?
A) £200
B) £220
C) £22
D) £181.82

Question

Quizplus · Accepted Answer

The present value of an indefinite (perpetual) annual payment (also known as a perpetuity) can be calculated using the formula PV = P / r, where PV is the present value, P is the payment amount, and r is the discount rate (expressed as a decimal). Here, P = £20 and r = 10% or 0.10. Thus, PV = £20 / 0.10 = £200.

What Is the Present Value of an Indefinite Annual Payment