A growing annuity is a cash flow stream with ________ (an infinite, a finite) life, while a growing perpetuity is a cash flow stream with a _______ (infinite or finite) . Therefore, given same initial cash flow, growth rate, and interest rate, the present value of the perpetuity will always be ___________ (greatwe rhan, less than, or equal to) the present value of the annuity.
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- 19) A growing perpetuity is one in which the cash flows: O grow as the rate of interest grows. remain constant forever. grow at an increasing rate forever. Ogrow at a constant rate forever.Increasing the number of periods will increase all of the following except: Select one: A. The present value of an annuity B. The present value of $1 C. The future value of $1 D. The future value of an annuityPerpetuity is a type of annuity which has infinite period of payments. The present value of a perpetuity equals to the annual payment divided by the required rate of return. True or False
- What is an annuity?* a.An investment that has no definite end and a stream of cash payments that continues forever b.A stream of cash flows that start one year from today and continue while growing by a constant growth rate c A series of equal payments at equal time periods and guaranteed for a fixed number of years d.A series of unequal payments at equal time periods which are guaranteed for a fixed number of yearsThe larger the periodic payment of an annuity, the greater its present value. True or False?A lump sum amount of money that must be deposited now to provide a specified series of equal payments (annuity) in the future is known as the future value of an annuity. O True O False
- The present value of an ordinary annuity, PAN, is the value today that would be equivalent to the annuity payments (PMT) received at fixed intervals over the annuity period. The equation is: Each payment of an annuity due is discounted for one less (1 + I). The equation is: PVAN= PMT 1- (1+1)N I period, so the present value of an annuity due is equal to the present value of an ordinary annuity multiplied by PVA due PVA ordinary (1+1) One can solve for payments (PMT), periods (N), and interest rates (I) for annuities. The easiest way to solve for these variables is with a financial calculator or a spreadsheet. Quantitative Problem 1: You plan to deposit $1,700 per year for 5 years into a money market account with an annual return of 2%. You plan to make your first deposit one year from today. a. What amount will be in your account at the end of 5 years? Do not round intermediate calculations. Round your answer to the nearest cent. $ b. Assume that your deposits will begin today. What…Select all the statements on perpetuities that are correct. a. The present value of a perpetuity increases if the interest rate increases. b. If I multiply the present value of a perpetuity with the interest rate then I get the value of a single payment of the cashflow stream. c. The present value value of a perpetuity is independent of the interest rate. d. The present value of a perpetuity is infinite as all the payments add up to infinity. e. A perpetuity describes a constant cashflow at the end of each year that continues infinitely long.Future value for an ordinary annuity and annuity due will be exactly the same if the investment horizon is exactly one year. Group of answer choices True False
- Which one of these statements related to growing annuities and perpetuities is correct? In computing the present value of a growing annuity, you discount the cash flows using the growth rate as the discount rate. You can compute the present value of a growing annuity but not a growing perpetuity. The future value of an annuity will decrease if the growth rate is increased. An increase in the rate of growth will decrease the present value of an annuity. The present value of a growing perpetuity will decrease if the discount rate is increased.Each payment of an annuity due is compounded for one compounded for one Select- -Select- v period, so the future value of an annuity due is equal to the future value of an ordinary annuity v period. The equation is: FVAdue=FVAordinary (1 + I) The present value of an ordinary annuity, PVAN, is the value today that would be equivalent to the annuity payments (PMT) received at fixed intervals over the annuity period. The equation is: 1- (1+1)N PVAN= PMT Each payment of an annuity due is discounted for one -Select- period, so the present value of an annuity due is equal to the present value of an ordinary annuity multiplied by (1 + I). The equation is: DVA זדתUsing an annuity, you may calculate the present value of a single payment or a series of payments you will receive. Is this statement correct or incorrect?