How much more is an annuity of $12,000 annually for 10 years with an interest of...
How much more is an annuity of $12,000 annually for 10 years with an interest of 6% than a perpetuity of $8,000 at the same rate?
Homework Answers
Present value of annuity= payment per period * [1-(1+i)^-n]/i
i = interest rate per period
n = number of periods
=>
present value of annuity = 12000 * [1-(1+0.06)^-10]/0.06
= 88321.05
Present value of perpetuity = 8000/0.06
= 133333.33
Hence the difference = 88321.05 - 133333.33
= -45012.28
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