Which of the Following Is True About Perpetuities

question 5

Multiple Choice

Which of the following is true about perpetuities?

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

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Definitions:

Comparative Advantage

The ability of an individual, firm, or country to produce a good or service at a lower opportunity cost than competitors, leading to specialized production and trade benefits.

Specialization

The process in which individuals, firms, or countries focus on producing a narrow range of goods or services to gain greater efficiencies and increase productivity.

Production Possibilities Curves

A graph that depicts the maximum potential output of one good for a given amount of output for another, assuming full efficiency and fixed resources.

Trading Possibilities Curves

Graphical representations that show the different quantities of two goods that a country can produce and trade given the same amount of resources.