When Estimating the Terminal Value of a Cash Flow Perpetuity

question 24

Multiple Choice

When estimating the terminal value of a cash flow perpetuity, which one of the following is not a component?

• A) the next period's cash flow
• B) a constant discount rate
• C) a constant growth rate
• D) the payback period

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Definitions:

Annually Compounded

A compound interest calculation where the interest is added to the principal at the end of each year.

Nominal Rate

The stated interest rate of a bond or loan, without accounting for compounding or inflation.

Mortgage Loan

A loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty.

Compounded Monthly

A method where the interest is calculated on a monthly basis and added to the principal sum, allowing the interest to grow over time through compounding.