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An annuity stream where the payments occur forever is called a(n): A. annuity due. B. indemnity....

An annuity stream where the payments occur forever is called a(n): A. annuity due. B. indemnity. C. perpetuity. D. amortized cash flow stream. E. ordinary annuity.

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Answer #1

Perpetuity refers to the cash flows that occur at a specified interest rate for an indefinite time period.

Value of perpetuity as on today for fixed cash flows can be computed as=Annual cash flow/interest rate.

Hence the correct option is c.perpetuity.

On the other hand;an ordinary annuity is equal cash flows at a specified interest rate at end of each year for fixed interval of time.

Also annuity due is equal cash flows at a specified interest rate at beginning of each year etc for fixed interval of time.

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