The Gates family recently established a trust fund that will provide annual scholarships of $12,000 indefinitely. These annual scholarships can best be described by which one of the following terms? a) Ordinary annuity

b) Annuity due

c) Amortized payment

d) Perpetuity

e) Continuation

The correct answer is letter "D": Perpetuity.

Explanation:

Perpetuity means infinite. Perpetuity in Finance is a flow of money that will be earned on a regular basis, without a defined end date. Calculating the present value of an annuity is based on the concept of perpetuity. Also, the concept of perpetuity is a basic concept used for securities as well as for real estate valuation in the dividend discount pricing model.

d) Perpetuity

Explanation:

A fix amount of payment received or paid indefinitely is called Perpetuity. It has no time limits and it continues forever. The difference between the perpetuity and annuity is only the time period. In annuity there is a defined time period for which payment is made but perpetuity does not have definite time.