How much more is a perpetuity of $1,000 worth than an annuity of the same amount for 20 years? Assume an interest rate of 10% and cash flows at the end of each period.
A) $297.29
B) $1,486.44
C) $1,635.08
D) $2,000.00

Question

Quizplus · Accepted Answer

PV_Perpetuity = $1,000 / 0.10 = $10,000PV_Annuity = $1,000[1 / 0.10 − 1 / 0.10(1.10)²⁰]PV_Annuity = $8,513.56Difference = $10,000 − 8,513.56 = $1,486.44

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