Amara purchased a bond that will pay $50 a year forever, starting one year from now, if the interest rate r is positive...
Amara purchased a bond that will pay $50 a year forever, starting one year from now, if the interest rate r is positive and constant, how much is her bond worth today?
1. 50/r
2. 50/ (1+r)
3. 50 (1+r)
4. 50/(1+r+r2+m+)
Homework Answers
Present worth of perpetual annuity = A /i
Present value of an annuity of 50 at interest r = 50 / r
Correct answer is 1. 50 / r
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