How Much More Is a Perpetuity of $1,000 Worth Than

question 5

Multiple Choice

How much more is a perpetuity of $1,000 worth than an annuity of the same amount for 20 years? Assume a 10 percent interest rate and cash flows at end of period.

• A)$297.29
• B)$1,486.44
• C)$1,635.08
• D)$2,000.00 Difference= $1,000/.10 - $1,000[1/.10-1/.10(1.10)²⁰]
• = $10,000 - $8,513.56

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