If Money Can Earn 6% Compounded Annually, What Percentage More

question 50

Short Answer

If money can earn 6% compounded annually, what percentage more money is required to fund an ordinary perpetuity paying $1,000 at the end of every year than to fund an ordinary annuity paying $1,000 per year for 25 years?

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Definitions:

Real Rate

The real rate is the rate of interest an investor expects to receive after allowing for inflation, essentially reflecting the real cost of funds to the borrower and the real yield to the lender.

Spot Exchange Rate

The current exchange rate at which a currency can be bought or sold for immediate delivery.

Yen

The official currency of Japan, commonly used in international finance as one of the world's major currencies.

Spending Money

Funds allocated for personal, discretionary use, typically for purchases outside of essential living expenses.