INVESTMENTS (LOOSELEAF) W/CONNECT
INVESTMENTS (LOOSELEAF) W/CONNECT
11th Edition
ISBN: 9781260465945
Author: Bodie
Publisher: MCG
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Chapter 16, Problem 2PS
Summary Introduction

To determine: The possibility for perpetuity carrying an infinite maturity to have a duration of short period of 10 to 20 years.

Introduction: Perpetuity means the payments of cash flows to the investors for an infinite period.

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How can a perpetuity, which has an infinite maturity, have a duration as short as 10 or 20 years?
Why would you prefer to receive an annuity due for $10,000 per year for 10 yearsthan an otherwise similar ordinary annuity?
How much more is a perpetuity of $ 1000 worth than an anuity of the same amount for 25 years? Assume an interest rate of 15% and cash flows at the end of each period?
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