Which of the following is true about perpetuities?
A)A perpetuity does not generate cash flows every period infinitely.
B)Since a perpetuity generates cash flows every period infinitely, there is no way to solve for the cash flow given the present value and the interest rate.
C)Since a perpetuity generates cash flows every period infinitely, the cash flow generated equals the PV times the interest rate.
D)Since a perpetuity generates cash flows every period infinitely, each cash flow must be discounted to calculate the present value.

Question

Quizplus · Accepted Answer

Perpetuities are financial instruments that generate cash flows indefinitely at regular intervals. The present value (PV) of a perpetuity can be calculated by dividing the cash flow per period by the interest rate, which implies that the cash flow equals the PV times the interest rate. This formula simplifies the valuation of perpetuities despite their infinite nature.

Which of the Following Is True About Perpetuities