Question

which of the following could be considered a form of perpetuity? a. the college tuition payments...

which of the following could be considered a form of perpetuity?
a. the college tuition payments that students make for four years
b. a 20 year corporate bond
c. a university scholarship endowment that promises to pay out $10,000 per year for an indefinite time period
d. a contract from the winning lottery ticket to receive cash flows for the next 30 years

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Answer #1

Perpetual cashflows means where cashflows keep coming till infinite period. It is never ending.

a. is wrong as payment is finite, (only 4 years)

b. is wrong as it has a finite life of 20 years

c. is correct as cashflows would be there for an infinite period of time

d. is wrong as it has cashflows of finite period (30 years)

Thus the correct option is C. A university scholarship endowment that promises to pay out $10,000 per year for an indefinite time period is a form of perpetuity.

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