The present value of an infinite stream of payments (X) at an interest rate of r% (r^*) is calculated as: A) X - r^*. B) X + r^*. C) X × r^*. D) X ÷ r^*.

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Quizplus · Accepted Answer

The present value of an infinite stream of payments (X) at an interest rate of r is calculated using the formula X ÷ r. This formula is derived from the concept of the perpetuity in finance, where the present value is the payment divided by the interest rate.

The Present Value of an Infinite Stream of Payments (X)