10. Perpetuities Perpetuities are also called annuities with an extended or unlimited life. Based on your understanding of perpetuities, answer the following questions.   A. Which of the following are characteristics of a perpetuity? Check all that apply.   The value of a perpetuity cannot be determined.   A perpetuity is a stream of regularly timed, equal cash flows that continues forever.   A perpetuity is a stream of unequal 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 of its more distant (in the future) cash flows.     B. 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 $25,000 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 5.50% per annum every year.   C. Oops! The bank representative just reported that he misquoted the available interest rate on the scholarship’s account. Your account should earn 3.50%. 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.

Future Value of an Annuity Find the future value of the following annuities. The first payment in these annuities is made at the end of Year 1, so they are ordinary annuities. (Notes: If you are using a financial calculator, you can enter the known values and then press the appropriate key to find the unknown variable. Then, without clearing the TVM register, you can "override" the variable that changes by simply entering a new value for it and then pressing the key for the unknown variable to obtain the second answer. This procedure can be used in many situations, to see how changes in input variables affect the output variable. Also, note that you can leave values in the TVM register, switch to Begin Mode, press FV, and find the FV of the annuity due.) Do not round intermediate calculations. Round your answers to the nearest cent. $600 per year for 10 years at 14%. $   $300 per year for 5 years at 7%. $   $600 per year for 5 years at 0%. $   Now rework parts a, b, and c…

An [Select] is a sequence of equal period payments. If payments are made at the end of each time interval, the annuity is called an [Select]

Show that the present value of annuaity due is one period accumulated value of the present value of annuity immediate.

Distinguish between the present value of $1 and the present value of an annuity due of $1.

Explain the relationship between Table 2, Present Value of $1, and Table 4, Present Value of an OrdinaryAnnuity of $1.

Question 4 All else held constant, the present value of an annuity will decrease if you: decrease the discount rate. decrease the time period. increase the annuity payment.

10. 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. The present value of a perpetuity is calculated by dividing the amount of the payment by the investor's opportunity interest rate. A perpetuity is a series of regularly timed, equal cash flows that is assumed to continue indefinitely into the future. ☐ A perpetuity continues for a fixed time period. 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 $15,000 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…

What is the name given to a series of multiple, equal payments when each payments will occur at the end of its time period and when the payments are expected to occur forever?

Listen The future value of an annuity due is: one period after the final payment. one period before the final payment. at the same point in time as the final payment.