Question

If you borrow $34,000 at 4.2% for your new SUV for four years, what are your monthly payments?

A perpetuity is

	A) an infinite series of equal payments
	B) an infinite series of unequal payments
	C) a finite series of equal payments where the first cash flow comes at the beginning of the first year
	D) a finite series of unequal payments where the first cash flow comes at the end of the first year.

Answer 1

1.
PV = $34,000
Nper = 4 * 12 = 48
Rate = 4.2% / 12
FV = 0

Monthly payment can be calculated by using the following excel formula:
=PMT(rate,nper,pv,fv)
=PMT(4.2%/12,48,-34000,0)
= $770.73

Monthly payments = $770.73

2.
an infinite series of equal payments

Correct answer is Option A. A perpetuity is an infinite series of equal payments. A perpetuity occur at regular intervals and it has equal cash flows.