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

Question

Quizplus · Accepted Answer

All statements about perpetuities are correct. A) The present value of a perpetuity increases with higher cash flows, as it represents a stream of payments that continues indefinitely. B) The present value is inversely related to the interest rate, meaning a lower rate increases the present value. C) If two perpetuities have the same present value and interest rate, their cash flows must be the same, as the formula for the present value of a perpetuity is Present Value = Cash Flow / Interest Rate.

Which of the Following Is True About Perpetuities