What amount, invested today at 6% compounded monthly, will support perpetual monthly payments of $500? The first payment will be made one month from now.

A) $500,000
B) $400,000
C) $300,000
D) $200,000
E) $100,000

Question

Ravuri Vishnu Vardhan Chowdary · Accepted Answer

Final Answer : E, Explanation :   To find the principal amount that can support perpetual monthly payments of $500 at an interest rate of 6% compounded monthly, we use the formula for the present value of a perpetuity:   P V = P M T r PV = \frac{PMT}{r} P V = r PMT ​  , where PMT is the monthly payment and r is the monthly interest rate. The annual interest rate is 6%, so the monthly interest rate is   0.06 / 12 = 0.005 0.06/12 = 0.005 0.06/12 = 0.005  . Plugging in the values, we get   P V = 500 0.005 = 100 , 000 PV = \frac{500}{0.005} = 100,000 P V = 0.005 500 ​ = 100 , 000  . Therefore, an investment of $100,000 is needed.

What amount, invested today at 6% compounded monthly, will support perpetual monthly payments of $500? The first payment will be made one month from now.

A) $500,000
B) $400,000
C) $300,000
D) $200,000
E) $100,000

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Learning Objectives

Related questions

What amount, invested today at 6% compounded monthly, will support perpetual monthly payments of $500? The first payment will be made one month from now.A) $500,000B) $400,000C) $300,000D) $200,000E) $100,000

Definitions

Learning Objectives

Learning Objectives

Related questions

What amount, invested today at 6% compounded monthly, will support perpetual monthly payments of $500? The first payment will be made one month from now.

A) $500,000
B) $400,000
C) $300,000
D) $200,000
E) $100,000