10. Perpetuities Perpetuities are also called annuities with an extended or unlimited life. Based on your understanding of perpetuities, answer the following questions. A. Which of the following are characteristics of a perpetuity? Check all that apply. The value of a perpetuity cannot be determined. A perpetuity is a stream of regularly timed, equal cash flows that continues forever. A perpetuity is a stream of unequal cash flows. The current value of a perpetuity is based more on the discounted value of its nearer (in time) cash flows and less by the discounted value of its more distant (in the future) cash flows. B. Your grandfather wants to establish a scholarship in his father’s name at a local university and has stipulated that you will administer it. As you’ve committed to fund a $25,000 scholarship every year beginning one year from tomorrow, you’ll want to set aside the money for the scholarship immediately. At tomorrow’s meeting with your grandfather and the bank’s representative, you will need to deposit (rounded to the nearest whole dollar) so that you can fund the scholarship forever, assuming that the account will earn 5.50% per annum every year. C. Oops! The bank representative just reported that he misquoted the available interest rate on the scholarship’s account. Your account should earn 3.50%. The amount of your required deposit should be revised to . This suggests there is relationship between the interest rate earned on the account and the present value of the perpetuity.
10. Perpetuities Perpetuities are also called annuities with an extended or unlimited life. Based on your understanding of perpetuities, answer the following questions. A. Which of the following are characteristics of a perpetuity? Check all that apply. The value of a perpetuity cannot be determined. A perpetuity is a stream of regularly timed, equal cash flows that continues forever. A perpetuity is a stream of unequal cash flows. The current value of a perpetuity is based more on the discounted value of its nearer (in time) cash flows and less by the discounted value of its more distant (in the future) cash flows. B. Your grandfather wants to establish a scholarship in his father’s name at a local university and has stipulated that you will administer it. As you’ve committed to fund a $25,000 scholarship every year beginning one year from tomorrow, you’ll want to set aside the money for the scholarship immediately. At tomorrow’s meeting with your grandfather and the bank’s representative, you will need to deposit (rounded to the nearest whole dollar) so that you can fund the scholarship forever, assuming that the account will earn 5.50% per annum every year. C. Oops! The bank representative just reported that he misquoted the available interest rate on the scholarship’s account. Your account should earn 3.50%. The amount of your required deposit should be revised to . This suggests there is relationship between the interest rate earned on the account and the present value of the perpetuity.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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10. Perpetuities
Perpetuities are also called annuities with an extended or unlimited life. Based on your understanding of perpetuities, answer the following questions.
A. Which of the following are characteristics of a perpetuity? Check all that apply.
The value of a perpetuity cannot be determined.
A perpetuity is a stream of regularly timed, equal cash flows that continues forever.
A perpetuity is a stream of unequal cash flows.
The current value of a perpetuity is based more on the discounted value of its nearer (in time) cash flows and less by the discounted value of its more distant (in the future) cash flows.
B. Your grandfather wants to establish a scholarship in his father’s name at a local university and has stipulated that you will administer it. As you’ve committed to fund a $25,000 scholarship every year beginning one year from tomorrow, you’ll want to set aside the money for the scholarship immediately. At tomorrow’s meeting with your grandfather and the bank’s representative, you will need to deposit (rounded to the nearest whole dollar) so that you can fund the scholarship forever, assuming that the account will earn 5.50% per annum every year.
C. Oops! The bank representative just reported that he misquoted the available interest rate on the scholarship’s account. Your account should earn 3.50%. The amount of your required deposit should be revised to . This suggests there is relationship between the interest rate earned on the account and the present value of the perpetuity.
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