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

question 96

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 midway through Year 10.If you require an effective annual interest rate of 14.49 percent,what is the present value of all three 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:

Economic Growth

An increase in the production of goods and services in an economy over a period of time, indicating an improvement in the country's economic health.

Resource Allocation

The process of distributing available resources among various competing needs or uses in order to achieve desired objectives.

Production Possibilities Curve

A graphical representation that shows the maximum quantity of one good that can be produced for any given quantity produced of another good, given the resources and technology available.

Technological Change

The development and application of new technologies and methods in production, often leading to increased efficiency and productivity.