Which of the Following Is True About Perpetuities

question 21

Multiple Choice

Which of the following is true about perpetuities?

• A) Since a perpetuity generates cash flows every period infinitely, the cash flow generated equals the PV times the interest rate.
• B) Since a perpetuity generates cash flows every period infinitely, initial cash outflow must be discounted to calculate the present value.
• C) Since a perpetuity generates cash flows every period infinitely, there is no way to solve for the cash flow using the present value and the interest rate.
• D) Since a perpetuity generates cash flows every period infinitely, its FV is the same as its PV.

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Definitions:

Misrepresentation

A false statement of fact made by one party to another party, which induces the latter party into a contract.

Concept

An abstract idea or a general notion that represents the fundamental characteristics of what it describes.

Tertiary

Pertains to the third level or stage in a series; often refers to post-secondary education or the service sector in the economy.

Primary

Relating to the first or earliest stage, level, or period; often signifies something that is of most importance.