The difference in present value between a perpetuity that promised $1 per year starting today and one that promised $1 per year starting next year is:
A)$1/(1 + i).
B)$1.
C)0.
D)$i/(1 + i).

Question

Quizplus · Accepted Answer

The difference in present value between a perpetuity that starts today and one that starts next year is the value of the first payment, which is $1. A perpetuity starting today includes the immediate $1 payment, whereas one starting next year does not, hence the difference is simply the value of the immediate payment, $1.

The Difference in Present Value Between a Perpetuity That Promised