14. Perpetuities Perpetuities are also called annuities with an extended, or unlimited, life. Based on...
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14. Perpetuities Perpetuities are also called annuities with an extended, or unlimited, life. Based on your understanding of perpetuities, complete the following exercises. Which of the following are characteristics of a perpetuity? Check all that apply. The principal amount of a perpetuity is repaid as a lump-sum amount. 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 A perpetuity continues for a fixed time period A local bank's advertising reads: "Give us $10,000 today, and we'll pay you $800 every year forever." If you plan to live forever, what annual interest rate will you earn on your deposit? 6.40% 12.80% 8.00% 7.20% Oops! When you went in to make your deposit, the bank representative said the amount of required deposit reported in the advertisement was incorrect and should have read $15,000. This revision, which will rate earned on your deposited funds, will adjust your earned interest rate to the interest
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