To further examine the relationship between interest rates and the price of fina

Question

To further examine the relationship between interest rates and the price of financial assets, consider the effect of a change in an investor? s required return, or opportunity cost , on the price of a financial asset. Four years ago, Zachary purchased a perpetuity that agrees to pay him and his hairs $150 per month forever. At the time of purchase, Zachary was expecting to earn an annual return of 6.00% , but in the intervening years, the economy and the available investment alternatives have changed. In today ?s market , it is now reasonable to anticipate an annual return of 3.60%. By how much would you expect the value of Zachary?s perpetuity to change from when he purchased it until today? $1,667 $50,000 $20,000 $30,000

Explanation / Answer

$ 20,000

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