Question

Perpetuities are also called annuities with an extended or unlimited life. Based on your understanding of perpetuities, answer the following questions.
1. Which of the following are characteristics of a perpetuity?
Check all that apply.
A. A perpetuity is a stream of unequal cash flows.
B. A perpetuity is a stream of regularly timed, equal cash flows that continues forever.
C. The value of a perpetuity cannot be determined.
D. The value of a perpetuity is equal to the sum of the present value of its expected future cash flows.

Answer 1

Answer:

The correct answers are letters "B" and "D": A perpetuity is a stream of regularly timed, equal cash flows that continues forever; The value of a perpetuity is equal to the sum of the present value of its expected future cash flows.

Explanation:

Perpetuity means endless. In finance, a perpetuity is a flow of money that will be regularly received without a specified end date. The definition of perpetuity is used when determining an annuity's present value. The formula for this is:

$PV = \frac{C}{R}$

• PV = present value
• C = cash flow
• R = discount rate

In other words, perpetuity equals the sum of the present value of the stream of future cash flows.

Answer 2

Answer:

The answer is D. The value of a perpetuity is equal to the sum of the present value of its expected future cash flows.

Explanation:

verification.

A perpetuity is an annuity that has no end, or a stream of cash payments that continues forever.