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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 A perpetuity is a series of regularly timed equal cash flows that is assumed to continue indefinitely into the future The present value of a perpetuity is calculated by dividing the amount of the payment by the investor s opportunity interest rate In a perpetuity returns in the form of a series of identical cash flows are earned A perpetuity continues for a fixed time period 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 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 4 50 per annum every year Oops The bank representative just reported that he misquoted the available interest rate on the scholarship s account Your account should earn 7 00 The amount of your required deposit should be revised to relationship between the This suggests there is interest rate earned on the account and the present value of the perpetuity

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