Value of a Perpetuity Calculation

Explanation

The value of the perpetuity = 500/0.12 = 4,167

To calculate the value of a perpetuity, we use the formula:

Value of Perpetuity = Cash Flow / Discount Rate

In this case, the perpetuity pays $500 every year and the discount rate is 12% per year.

Substituting these values into the formula, we get:

Value of Perpetuity = $500 / 0.12

To simplify the calculation, we divide $500 by 0.12:

Value of Perpetuity = $4,166.67

Therefore, the value of the perpetuity is approximately $4,166.67.

Among the given answer choices, the closest value to $4,166.67 is option C: $4,167.