Question

Present Value of a Perpetuity implies that

	A.	the payments will last until the life expectancy of the recipient
	B.	you have to determine the present value of the payments that will last indefinitely
	C.	we are dealing exclusively with a preferred stock which makes dividend payments indefinitely
	D.	we are indulging in a fantasy because no one makes payments forever
	E.	one can obtain the correct answer by using the following simple formula: PV=PMT (1+r)

Answer 1

Present Value of a Perpetuity implies that

you have to determine the present value of the payments that will last indefinitely

Therefore option B is correct.

Option A is incorrect since perpetuity implies indefinitely till the life of the payer {In case of companies' life of the life}

Option C is incorrect because perpetuity may also be a Debt bond not necessarily Preferred Stock always

Option D is incorrect as perpetual securities exists.

Option E is incorrect. PV of perpetuity = PMT / r