Question

Perpetuities are also called annuities with an extended, or unlimited, life. Based on your understanding of perpetuities, answer the following questions: Which of the following are characteristics of a perpetuity? Check all that apply. The value of a perpetuity cannot be determined. The current value of a perpetulty is based more on the discounted value of its nearer (in time) cash flows and less by counted value of its more distant in the future) cash flows. A perpetuity is a stream of regularly timed, equal cash flows that continues forever. A perpetuity is a stream of unequal cash flows. A local bank's advertising reads: "Give us $15,000 today, and we'll pay you $5,200 every year forever. If you plan to live forever, what annual interest rate will you earn on your deposit? 48.54% 41.60 O 34.679 O 55.479 Oops! When you went in to make your deposit, the bank representative said the amount of required deposit reported in the advertisement was incorrect and should have read $22,500. This revision will the interest rate earned on your deposited funds. The change to your required deposit will cause your earned interest rate to change to

Answer 1

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Q-1 The correct statements are II and III

Q-2:

=Annual cf/pv of cash flow

=5200/15000

=34.67%

Q-3: The revision will be:-

=5200/22500

=23.11%

Q-4 Fall