Consider an investment that promises $1,000 at the end of each of the next four years, and $2,000 per year thereafter, forever. If the discount rate is 5%, the present value of this investment is closest to:
A) $32,908.10
B) $36.454.05
C) $40,000.00
D) $43,545.95

Question

Quizplus · Accepted Answer

The present value of the first four $1,000 payments is calculated using the formula for the present value of an annuity. The present value of the perpetuity starting from year 5 is calculated using the perpetuity formula, and then discounted back to the present value. Adding these two components gives the total present value closest to $36,454.05.

Consider an Investment That Promises $1,000 at the End of Each