How much more is a perpetuity of 1000 worth than an annuity of the same amount for 19 years?

How much more is a perpetuity of 1000 worth than an annuity of the same amount for 19 years? Assume an interest rate of 8% and cash flows at the end of each year.

Expert Solution

present value of perpetuity(1000/8%)

12500

annuity factor for 19 years(1000* present value annuity factor for 19 yrears)

(1000*9.603599)

9604

Difference between above (12500-9604)

2896

jeff jeffy answered 2 years ago

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