What is the difference in the value of a $5,000 annual perpetuity and an annuity of $5,000 for 100 years? Assume that the discount rate is 8% and that cash flows are received at the end of the year.
A) $28
B) $656
C) $1,656
D) $5,000

Question

Quizplus · Accepted Answer

The present value of the perpetuity is 5,000/0.08 = $62,500.For the annuity:
The difference = 62,500 - 62,472 = $28
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What Is the Difference in the Value of a $5,000