You are currently willing to pay $25,000 to purchase a perpetuity which will pay you and your heirs $2,250 each year forever (the first $2,250 payment will be received one year from today). If your required rate of return does not change, how much would you currently be willing to pay if this were a 10-year ordinary annuity of $2,250 per year instead of a perpetuity? (Select the range in which the correct answer falls)

A. Less than $14,200
B. Greater than or equal to $14,200 but less than $14,300
C. Greater than or equal to $14,300 but less than $14,400
D. Greater than or equal to $14,400 but less than $14,500
E. Greater than or equal to $14,500

Answer rating: 100% (QA)

The best option is d Explanation Calculation of required rate ... View the full answer