You want to receive a perpetual annual scholarship payment of 5,000. If the interest rate is 8% and the payment grows by 3% each year, what is the required present value?

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SSC Audit Tax Finance P-II QUESTION #6165

Question 1

You want to receive a perpetual annual scholarship payment of $5,000. If the interest rate is 8% and the payment grows by 3% each year, what is the required present value?

$62,500
$100,000✔️
$166,667
$250,000

Correct Answer Explanation

For a growing perpetuity: $PV = \frac{CCF}{i - g}$. So, $5,000 / (0.08 - 0.03) = 100,000$.

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