How much more is a perpetuity of $1600 worth than an annuity of the same amount...

How much more is a perpetuity of $1600 worth than an annuity of the same amount for 24 years? Assume an annual interest rate of 13% and cash flows at the end of each period. Given annual compounding.

Expert Solution

Ans 655.08

Present Value of Perpetuity =	Annual amount / Discount rate
	1600 / 13%
	12307.69

PRESENT VALUE OF ANNUITY =	P [ 1 - ( 1 + r )^-n ]
	r

PRESENT VALUE OF ANNUITY =	1600 * ( 1 - ((1 / (1 + 13%)^24)))
	13%

PRESENT VALUE OF ANNUITY =	1514.839669
	0.13

PRESENT VALUE OF ANNUITY =	11652.61

Difference =	12307.69 - 11652.61
	655.08

jeff jeffy answered 2 years ago

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