9. Perpetuities Perpetuities are also called annuities with an extended, or unlimited, life. 1. Based on your understanding of perpetuities, answer the following questions: Which of the following are characteristics of a perpetuity? Check all that apply. A perpetuity continues for a fixed time period. In a perpetuity, returns—in the form of a series of identical cash flows—are earned. The principal amount of a perpetuity is repaid as a lump-sum amount.
9. Perpetuities Perpetuities are also called annuities with an extended, or unlimited, life. 1. Based on your understanding of perpetuities, answer the following questions: Which of the following are characteristics of a perpetuity? Check all that apply. A perpetuity continues for a fixed time period. In a perpetuity, returns—in the form of a series of identical cash flows—are earned. The principal amount of a perpetuity is repaid as a lump-sum amount.
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 9MC: The process that determines the present value of a single payment or stream of payments to be...
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9. Perpetuities
Perpetuities are also called annuities with an extended, or unlimited, life.
1. Based on your understanding of perpetuities, answer the following questions:
Which of the following are characteristics of a perpetuity? Check all that apply.
A perpetuity continues for a fixed time period.
In a perpetuity, returns—in the form of a series of identical cash flows—are earned.
The principal amount of a perpetuity is repaid as a lump-sum amount.
A perpetuity is a series of regularly timed, equal cash flows that is assumed to continue indefinitely into the future.
2. A local bank’s advertising reads: “Give us $35,000 today, and we’ll pay you $2,400 every year forever.” If you plan to live forever, what annual interest rate will you earn on your deposit?
5.49%
6.86%
9.60%
8.23%
3.
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 $52,500. 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 .
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