iiy hot uhction correctly. Click here to learn more. r 9. Perpetuities Which of
ID: 2820077 • Letter: I
Question
iiy hot uhction correctly. Click here to learn more. r 9. Perpetuities Which of the following are characteristics of a perpetuity? Check all that apply. A perpetuity is a stream of unequal cash flows. The value of a perpetuity is a finite number. The value of a perpetuity cannot be determined. The value of a perpetuity is equal to the sum of the present value of future cash flows. A perpetuity is a stream of equal cash flows that continues forever. Your grandfather wants to establish a scholarship in his name at a local university, which you will administer. You've committed to a $2,000 scholarship every year, so you want to set aside the money for the scholarship now. How much do you need to deposit in an account today that pays 4.50% interest so that you can pay for the scholarship forever? O $53,333.33 $44,444.44 O $55,555.55 O $42,222.22 what happens to the value of the perpetuity if the interest rate is 6.75%, O The present value of the scholarship decreases to $29,629.63, O The present value of the scho larship increasas to $55,555.55Explanation / Answer
1. Option B D & E
Value of Perpetuity is a finite number and is equal to present value of Future cash flows and it is a stream of cash flows that will arrive forever
2. Amount that needs to be deposited = Needed Cash Flow / Interest Rate = $2000 / 4.50% = $44444.44 Option B
3. The present value will be reduced to $29629.63 Option A
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