Read the two statements and choose the correct option.
I. The present value of a perpetuity of $R$ a period at rate $i$ a period is $\frac{R}{i}$ .
II. A perpetuity pays for ever, so its present value is infinite.

Only ICorrect answerYour answerOnly IICorrect answerYour answerBoth I and IICorrect answerYour answerNeither I nor IICorrect answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer A

Correct answer: A

I: a sum of $\frac{R}{i}$ earns exactly $R$ a period in interest, for ever. True.
II: far-off payments are worth less and less today, so the total stays finite, $\frac{R}{i}$ . False.

Ten questions from Perpetuity, Sinking Funds & Bonds, at your own pace.

Ten questions from Perpetuity, Sinking Funds & Bonds, at your own pace.

Read the two statements and choose the correct option.I. The present value of a perpetuity of RRR a period at rate iii a period is Ri\frac{R}{i}iR​.II. A perpetuity pays for ever, so its present value is infinite.