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:

Opportunity Cost

The opportunity cost incurred by choosing a specific alternative over others.

Teddy Bears

Plush toys resembling a bear, typically designed for children.

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Toy trains are scale models of trains intended for play or collecting, often part of a larger hobby involving detailed landscapes and elaborate track layouts.

Opportunity Cost

The value of the next best alternative forgone as a result of making a decision, reflecting the trade-offs of choosing one option over another.