CIMA BA1 · Chapter 13 · Question 6 of 10
An investment will pay $3,000 a year in perpetuity, with the first payment received at the end of Year 3. If the discount rate is 6% a year, what is the present value of the investment (to the nearest cent)?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) $44,499.82
Explanation
A perpetuity starting at the end of Year 3 is valued at the end of Year 2 as 3,000 / 0.06 = $50,000.00. Discounting this two years to today: 50,000 / 1.06^2 = 50,000 / 1.1236 = $44,499.82.
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