A Perpetuity Pays $550 at the End of Every Month

question 39

Multiple Choice

A perpetuity pays $550 at the end of every month.The PV of the perpetuity is $36,000.What is the effective interest rate (EIR) on the perpetuity?

• A) 19.95%
• B) 18.33%
• C) 9.17%
• D) 13.42%
• E) 15.15%

---

Definitions:

Equity

The value of an ownership interest in property or a business, calculated as total assets minus total liabilities; represents what the owners' claim on the assets is.

Entity Assumption

The accounting principle that treats a business as a separate legal and accounting entity, distinct from its owners, managers, or operators.

Historical Cost Principle

An accounting principle that assets should be recorded and reported at their original purchase cost.

Going-Concern Assumption

An accounting principle assuming that a company will continue to operate indefinitely and not go bankrupt, impacting financial decisions and reporting.