Question

**6. 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. A perpetuity is a series of regularly timed, equal cash flows that is assumed to continue indefinitely into the future.

B. The principal amount of a perpetuity is repaid as a lump-sum amount.

C. The present value of a perpetuity is calculated by dividing the amount of the payment by the investor’s opportunity interest rate.

D. In a perpetuity, returns—in the form of a series of identical cash flows—are earned.

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 $10,000 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 6.00% 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 4.75%. The amount of your required deposit should be revised to _____________ . This suggests there is ___________ relationship between the interest rate earned on the account and the present value of the perpetuity.

Answer #1

**IF YOU HAVE ANY DOUBTS COMMENT BELOW I WILL BE
TTHERE TO HELP YOU..ALL THE BEST..**

**ANSWER:**

**In a perpetuity returns in the form of a series of
identical cash flows are earned.**

**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.**

**2nd part.**

**you will need to deposit
$181,818..**

**working: annual payment / interest
rate**

**=>10,000/5.50%**

**=>$181,818.**

**3rd part.**

**deposit should be revised to
$285,714.**

**working:**

**$10,000 / 3.50%.**

**4th part**

**This suggests there is an inverse relationship
between the interest rate earned on the account and present value
of the perpetuity.**

**I HOPE YOU UNDERSTAND..**

**PLS RATE THUMBS UP..ITS HELPS ME
ALOT..**

**THANK YOU...!!**

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.
The value of a perpetuity is equal to the sum of the present
value of its expected future cash flows.
The current value of a perpetuity is based more on the
discounted value of its nearer (in time) cash flows and less by the
discounted value...

On each December 31, you plan to transfer $3,100 from your
checking account into an investment account. The investment account
will earn 6 percent annual interest, which will be added to the
account balance at each year-end. The first deposit will be made
December 31, 2018 (at the end of the period). (Future Value of $1,
Present Value of $1, Future Value Annuity of $1, Present Value
Annuity of $1) (Use appropriate factor(s) from the tables
provided.)
Required: 1. What...

1.Find the present value of the following ordinary annuities.
Round your answer to the nearest cent.
Amount per Payment
Payment at End of Each
Time (Years)
Rate of Investment
Present Value
$3,300
6 months
8
12%
$
2. Find the amount of the following annuities due and interest
earned. Round your answer to the nearest cent.
Amount of
Each Deposit
Period
Rate
Time
(Years)
Amount of
Annuity
$7,500
quarterly
8%
8
$
3.Find the amount of each payment needed to...

A series of cash flows may not always necessarily be an annuity.
Cash flows can also be uneven and variable in amount, but the
concept of the time value of money will continue to apply.
Consider the following case:
The Purple Lion Beverage Company expects the following cash
flows from its manufacturing plant in Palau over the next five
years:
Annual Cash Flows
Year 1
Year 2
Year 3
Year 4
Year 5
$250,000
$37,500
$480,000
$300,000
$550,000
The CFO...

7. Future value of annuities
There are two categories of cash flows: single cash flows,
referred to as “lump sums,” and annuities. Based on your
understanding of annuities, answer the following questions.
Which of the following statements about annuities are true?
Check all that apply.
A perpetuity is a constant, infinite stream of equal cash flows
that can be thought of as an infinite annuity.
An annuity due earns more interest than an ordinary annuity of
equal time.
An annuity...

1-Suppose your client is also very generous, and wishes to leave
the entire $4,000,000 in savings to charity and her children upon
her death. Also, to help assure its value, at retirement she plans
to move all her savings into a less risky fund expected to earn an
effective annual rate of 3%. Given her goal and the change in
expected return, how much can she plan to withdraw from her account
each month until her death?
2-The present value...

. Nonannual compounding period
The number of compounding periods in one year is called
compounding frequency. The compounding frequency affects both the
present and future values of cash flows.
An investor can invest money with a particular bank and earn a
stated interest rate of 6.60%; however, interest will be compounded
quarterly. What are the nominal, periodic, and effective interest
rates for this investment opportunity?
Interest Rates
Nominal rate
Periodic rate
Effective annual rate
You want to...

A year from now, you plan to begin saving for your retirement by
making a deposit into a new savings account that has an expected
return of 7.5% compounded monthly. You plan to continue depositing
the same amount each year until you retire in 30 years. You expect
to make withdrawals in the amount of $200 from your savings account
every week for 45 years after you retire. Assume you were asked to
find the amount you will need to...

1.Today is your 25thbirthday and you have a dream of retiring on
your 65thbirthday. You want to put aside however much is necessary
on your 31stthrough 65thbirthdays (35annual payments) to have
enough to retire. You've estimated that you will live until you are
90 and you want the first withdrawal to occur on your 66thbirthday,
with the last payment occurring on your 90thbirthday. You think
that you will need $175,000 per year to spend during retirement.
You estimate constant interest...

6. Future value of annuities
There are two categories of cash flows: single cash flows,
referred to as “lump sums,” and annuities. Based on your
understanding of annuities, answer the following questions.
Which of the following statements about annuities are
true? Check all that apply.
Annuities are structured to provide fixed payments for a fixed
period of time.
When equal payments are made at the beginning of each period for
a certain time period, they are treated as an annuity...

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