Which one of these statements related to growing annuities and perpetuities is c

Question

Which one of these statements related to growing annuities and perpetuities is correct?
Question 7 options:
1) The cash flow used in the growing annuity formula is the initial cash flow at time zero
2) Growth rates cannot be applied to perpetuities if you wish to compute the present value.
3) The future value of an annuity will decrease if the growth rate is increased.
4) An increase in the rate of growth will decrease the present value of an annuity.
5) The present value of a growing perpetuity will decrease if the discount rate is increased

Explanation / Answer

12. Which one of these statements related to growing annuities and perpetuities is correct?

A. The cash flow used in the growing annuity formula is the initial cash flow at time zero.

B. Growth rates cannot be applied to perpetuities if you wish to compute the present value.

C. The future value of an annuity will decrease if the growth rate is increased.

D. An increase in the rate of growth will decrease the present value of an annuity.

E. The present value of a growing perpetuity will decrease if the discount rate is increased

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