You Will Receive a $100 Annual Perpetuity, the First Payment

question 59

Multiple Choice

You will receive a $100 annual perpetuity, the first payment to be received now, at Year 0, a $300 annual perpetuity payable starting at the end of Year 5, and a $200 semiannual (2 payments per year) perpetuity payable starting midw through Year 10.If you require an effective annual interest rate of 14.49 percent, what is the present value of all thr perpetuities together at Year 0? (Hint: The semiannual annuity can be thought of as two annual annuities.)

• A)$2,091.86
• B)$2,785.14
• C)$4,213.51
• D)Infinite; the present value of any perpetuity is infinite.
• E)Cannot determine the value since some payments are annually and some semiannually.

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Definitions:

Economies of Scope

Cost advantages that enterprises obtain through diversification and the production of a variety of goods rather than specializing in a single product.

Multiproduct Firms

Companies that produce and sell more than one product or service, often benefiting from economies of scope.

Technology

Refers to the application of scientific knowledge for practical purposes, especially in industry.

Short-run Average Cost

The total cost divided by the quantity of output produced, in the short term when at least one input is fixed.