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An annuity that goes on indefinitely is called a perpetuity. The payments of a perpetuity constitute a/an series. The equation is: A stock with no maturity is an example of a perpetuity. Quantitative Problem: You own a security that provides an annual dividend of $170 forever. The security’s annual return is 9%. What is the present value of this security? Round your answer to the nearest cent. $

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Answer:

Present value of the security = $1,888.89

Explanation:

The annual dividend of $170 represents a perpetual income stream. The present value of a perpetuity is calculated as follows:

[tex]PresentValue=\frac{Coupon}{r}[/tex]

where r =interest rate per annum that would be compounded for each year

Therefore, present value of the security = [tex]\frac{170}{0.09}[/tex] = $1,888.89

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