Question: Consider a perpetuity and an annuity with the same fixed cash flow and positive interest rates. Compare the present values of the two cash flow

Consider a perpetuity and an annuity with the same fixed cash flow and positive interest rates. Compare the present values of the two cash flow streams. Which one is greater?

a. It depends on the level of the interest rates

b. The present value of a perpetuity is greater than the present value of the annuity.

c. It depends on the duration of the annuity (N)

d. It depends on the level of the cash flow

e. The present value of the annuity is greater than the present value of the perpetuity.

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