Which One of the Following Statements Related to Annuities and Perpetuities

question 70

Multiple Choice

Which one of the following statements related to annuities and perpetuities is correct?

• A)An ordinary annuity is worth more than an annuity due given equal annual cash flows for ten years at 7 percent interest, compounded annually.
• B)A perpetuity comprised of $100 monthly payments is worth more than an annuity comprised of $100 monthly payments, given an interest rate of 12 percent, compounded monthly.
• C)Most loans are a form of a perpetuity.
• D)The present value of a perpetuity cannot be computed, but the future value can.
• E)Perpetuities are finite but annuities are not.

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Definitions:

Optimal R&D

Refers to the ideal level of spending or investment in research and development activities that maximizes innovation benefits relative to costs.

Expected-Rate-Of-Return

The predicted amount of gain or loss an investment is expected to generate, expressed as a percentage.

Interest-Rate Cost-Of-Funds

The expense associated with borrowing funds, measured by the interest rate that banks or other financial institutions charge for the use of their money.

Interest-Rate Cost

The cost incurred by an individual or entity due to the interest rate applied on borrowed funds, influencing how much is paid back in interest over the loan period.