Which of the Following Is True About Perpetuities

question 85

Multiple Choice

Which of the following is true about perpetuities?

• A) All else equal, the value of a perpetuity is higher when the periodic cash flow is lower.
• B) All else equal, the value of a perpetuity is higher when the interest rate is higher.
• C) If two perpetuities have the same present value and the same interest rate, they must have the same cash flows.
• D) All else equal, the value of a perpetuity is lower when the interest rate is lower.
• E) If two perpetuities have the same cash flows, they must have the same present value.

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Definitions:

Sales

Transactions involving the exchange of goods or services for money.

Explicit Costs

Direct, out-of-pocket payments for resources employed in the production of goods or services, such as wages, rent, and materials.

Wages

Monetary compensation paid by an employer to an employee in exchange for work performed.

Total Loss

The situation in which the cost of repairing a damaged asset exceeds its value, or when an asset is completely destroyed or lost.