Question

Which of the following statements regarding perpetuities is​ FALSE? A. A perpetuity is a stream of equal cash flows that occurs at regular intervals and lasts forever. B. To find the value of a perpetuity by discounting one cash flow at a time would take forever. C. PV of a perpetuity​ = StartFraction r Over Upper C EndFraction D. One example of a perpetuity is the British government bond called a consol.

Answer 1

Answer:

The answer is: C) PV of a perpetuity​ = StartFraction r Over Upper C EndFraction (I guess this means PV = r / C, which is FALSE)

Explanation:

The formula for calculating the present value of a perpetuity is:

                        PV = C / r

Where PV = Present Value, C = cash flow, r = discount rate.

A perpetuity is a stream of equal cash flows that lasts forever (perpetually).

The formula for calculating the present value of a perpetuity is simple, so there is no reason to spend time calculating the present value of each cash flow, since there are infinite cash flows.

A consol bond s a type of perpetuity issued by the British government (also by the US government)