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Explain the differences between perpetuities and annuities. What common types of perpetuities and annuities do people...

Explain the differences between perpetuities and annuities. What common types of perpetuities and annuities do people invest in?

Expert Solution

A.Difference between perpetuities & annuities

PERPETUITIES

ANNUITIES

1.Defination

An indefinite seires of payment of equal amounts at regular intervals on a fixed date is known as"perpetuities"

1Defination

.Annuity is a constant periodic cash flows, over a specific period

2. Period

The perpetuity is everlasting or unspecified

2.Period

The annuity is for fixed period or specified

3. Payment

In perpetuity only cash outflow is there

3.Payment

In annuity the payment is made or received

4.Future Value

Calculation of future value is not possible in case of perpetuity

4. Future Value

Future value can be calculated with the help of compounding

B. Common type of perpetuities and annuities

PERPETUITIES

ANNUITIES

1. Scholarship paid perpetually from endowment

.2. UK's government bond known as a Consol

3. Preferred stock

1. Insurance premium

2. Pension payments

3 Regular deposit to saving account

jeff jeffy answered 1 year ago

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