10 Perpetuities Perpetuities are also called annuities with

Last updated: 6/11/2023

10 Perpetuities Perpetuities are also called annuities with an extended or unlimited life Based on your understanding of perpetuities answer the following questions Which of the following are characteristics of a perpetuity Check all that apply A perpetuity is a series of regularly timed equal cash flows that is assumed to continue indefinitely into the future The present value of a perpetuity is calculated by dividing the amount of the payment by the investor s opportunity interest rate In a perpetuity returns in the form of a series of identical cash flows are earned A perpetuity continues for a fixed time period Your grandfather wants to establish a scholarship in his father s name at a local university and has stipulated that you will administer it As you ve committed to fund a 15 000 scholarship every year beginning one year from tomorrow you ll want to set aside the money for the scholarship immediately At tomorrow s meeting with your grandfather and the bank s representative you will need to deposit rounded to the nearest whole dollar so that you can fund the scholarship forever assuming that the account will earn 4 50 per annum every year Oops The bank representative just reported that he misquoted the available interest rate on the scholarship s account Your account should earn 7 00 The amount of your required deposit should be revised to relationship between the This suggests there is interest rate earned on the account and the present value of the perpetuity