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Perpetuity, Sinking Funds & Bonds · Question 11 of 63

Question 11

MediumOriginal question

Read the two statements and choose the correct option.

I. When the rate of interest rises, the present value of a perpetuity falls.

II. Doubling the yearly payment doubles the present value of a perpetuity.

Options for question 11

Show the answer and explanation
CorrectNot quiteAnswer C

Correct answer: C

Explanation

  1. I: Ri\frac{R}{i} gets smaller as ii grows. True.

  2. II: 2Ri=2×Ri\frac{2R}{i} = 2 \times \frac{R}{i}. True.

Concept
Interest rates and a perpetuity's value
Typical time
90 s
Your time
—
The rule this testsPerpetuity
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