erpetuities 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 present value of a perpetuity is calculated by dividing the amount of the payment by the investor’s opportunity interest rate. In a perpetuity, returns—in the form of a series of identical cash flows—are earned. A perpetuity continues for a fixed time period. The principal amount of a perpetuity is repaid as a lump-sum amount
erpetuities 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 present value of a perpetuity is calculated by dividing the amount of the payment by the investor’s opportunity interest rate. In a perpetuity, returns—in the form of a series of identical cash flows—are earned. A perpetuity continues for a fixed time period. The principal amount of a perpetuity is repaid as a lump-sum amount
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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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 present value of a perpetuity is calculated by dividing the amount of the payment by the investor’s opportunity interest rate.
In a perpetuity, returns—in the form of a series of identical cash flows—are earned.
A perpetuity continues for a fixed time period.
The principal amount of a perpetuity is repaid as a lump-sum amount.
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 $5,000 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 5.00% per annum every year.
Oops! The bank representative just reported that he misquoted the available interest rate on the scholarship’s account. Your account should earn 4.25%. 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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