Question

A firm receives a cash flow from an investment that will increase by 10 percent annually for an infinite number of years. This cash flow stream is called:
a. an annuity due.
b. a growing perpetuity.
c. an ordinary annuity.
d. a growing annuity.

Answer 1

Answer:

b. a growing perpetuity.

Explanation:

As we know that an annuity is a stream of the cash flow that goes for the limited time period i.e. number of years

But in the case of perpetuity it would go for an infinite time period

Since in the question the cash flow arises from an investment rises by 10% for an infinite number of years so this represents the growing perpetuity

Hence, the correct option is b.