The present discounted value of an infinite stream of payments of $1 per year when the interest rate is 10% is:
A) 0.909.
B)1.
C)1.1.
D)10.

Question

Quizplus · Accepted Answer

The present discounted value of an infinite stream of payments can be calculated using the formula for the present value of a perpetuity: PV = P / r, where P is the payment per period and r is the interest rate. Here, P = $1 and r = 10% or 0.10, so PV = $1 / 0.10 = $10.

The Present Discounted Value of an Infinite Stream of Payments