Question

What is the present worth difference between an investment of $75,000 per year for 35 years and an investment of $75,000 per year forever at an interest rate of 9% per year?

Answer 1

Present Worth Difference

$     40,821.72

Working:

Present Value of 35 Years Investment

=

Annual Investment*Present Value of annuity of $ 1

=

$           75,000

x

10.567

=

$       7,92,512

Present Value of annuity of $ 1

=

(1-(1+i)^-n)/i

Where,

=

(1-(1+0.09)^-35)/0.09

i

9%

=

10.567

n

35

Present Value of forever investment

=

C/i

Where,

=

75000/9%

C

$       75,000

=

$       8,33,333

i

9%

Difference between both difference

=

$ 8,33,333.33

-

$ 7,92,511.61

=

$     40,821.72