The present value of a perpetuity can be determined by:
A) multiplying the payment by the interest rate.
B) dividing the interest rate by the payment.
C) multiplying the payment by the number of payments to be made.
D) dividing the payment by the interest rate.

Question

Quizplus · Accepted Answer

The present value of a perpetuity can be determined by dividing the payment by the interest rate. This is because a perpetuity is a series of equal payments that continue indefinitely, so to determine its present value, we need to discount those payments back to the present. Dividing the payment by the interest rate gives us the present value of the perpetuity.

The Present Value of a Perpetuity Can Be Determined By