Busıness Fınance I Deneme Sınavı Sorusu #858481
Which of the following is the reason why the valuation of perpetuities are highly dependent upon the interest rate?
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The cash flows are brought forward in time, becoming more valuable as a result. |
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Interest rate is located in the denominator of the present value formula. |
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these types of cash flows get special attention is that in addition to being relatively common |
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The periodic rate is the annual rate divided by the number of installments per year. |
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The interest will exceed the stated rate if the compounding period is smaller than one year |
The valuation of perpetuities are highly dependent upon the interest rate. Since interest rate is located in the denominator of the present value formula, an increase in interest rates would lead to lower present value of the given consol, keeping everything else constant.
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