Question

How much less is a perpetuity of $4,000.00 worth than an annuity due of the same...

How much less is a perpetuity of $4,000.00 worth than an annuity due of the same amount for 40 payments? Assume an interest rate of 12%. (Notice: if the present value of the perpetuity is higher, then the number will be negative.)

Multiple Choice $4,318.54

$3,598.79

$3,238.91

$3,958.66

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Ans $3,958.66

P = Periodic Payments
r = rate of interest
n = no of periods
Annuity PV Factor (End of Period) = P [ 1 - ( 1 + r )^-n ]
        r
4000* ( 1 - ((1 / (1 + 12%)^40)))
                     12%
3957.012807
0.12
32975.11
Annuity PV Due (Beginning)= P + ( P [ 1 - ( 1 + r )^-(n-1) ] /   r )
4000 + 4000 * ( 1 - ((1 / (1 + 12%)^(40-1))))/ (12%)
36932.12
Difference = 36932.12 - 32975.11
3958.66
0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Mo will receive a perpetuity of $29,000 per year forever, while Curly will receive the same...
Mo will receive a perpetuity of $29,000 per year forever, while Curly will receive the same annual payment for the next 50 years. If the interest rate is 7.3 percent, how much more are Mo's payments worth? Multiple Choice $10,991.58 $11,357.97 $11,724.36 $12,310.58 $10,442.01
Find the present value of an annuity due in perpetuity that pays $75 at the beginning...
Find the present value of an annuity due in perpetuity that pays $75 at the beginning of each year for 20 years and increases by 4% each year, starting at the beginning of the 21th year. Here assume effective annual interest i = 7%.
A perpetuity with payments of 1 at the end of each year has a present value...
A perpetuity with payments of 1 at the end of each year has a present value of 40. A 10-year annuity pays X at the beginning of each year. Assuming the same effective interest rate, the present values of the perpetuity and the 10-year annuity are equal. Find X.
1. Find the present value of a 30-year annuity-due with semiannual payments in which the first...
1. Find the present value of a 30-year annuity-due with semiannual payments in which the first payment is $20,000, the second payment is $21,600, the third payment is $23,328, the fourth payment is $25,194.24, etc., assuming an annual effective rate of interest of 16%. 2. Find the present value of a varying perpetuity-DUE in which payments are made every two years with the first payment being $245, and each payment thereafter is $150 larger than the previous payment. Assume the...
At an annual effective interest rate, i, where i > 0, a 40-year annuity-due with quarterly...
At an annual effective interest rate, i, where i > 0, a 40-year annuity-due with quarterly payments of $6 has the same present value as a 20-year annuity-due with quarterly payments of $8. Determine i. (ALSO please draw any time diagrams that would be helpful for this problem)
Nara inherits a perpetuity from her grandfather that will pay here $3000 today and every year...
Nara inherits a perpetuity from her grandfather that will pay here $3000 today and every year forever. The annual interest rate is 4%. a) How much is Nara's inheritance worth? Nara decides to sell the perpetuity (for its present value) and instead buy an annuity due paying $P for the next 28 years. b) What is $P? She changes her mind again, and decides instead on an annuity due paying $6000 per year for n years, except for the last...
Nara inherits a perpetuity from her grandfather that will pay here $4000 today and every year...
Nara inherits a perpetuity from her grandfather that will pay here $4000 today and every year forever. The annual interest rate is 6%. a) How much is Nara's inheritance worth? Nara decides to sell the perpetuity (for its present value) and instead buy an annuity due paying $P for the next 24 years. b) What is $P? She changes her mind again, and decides instead on an annuity due paying $8000 per year for n years, except for the last...
1. A perpetuity-due has monthly payments in this pattern: Q, 2Q, 3Q, Q, 2Q, 3Q, Q,...
1. A perpetuity-due has monthly payments in this pattern: Q, 2Q, 3Q, Q, 2Q, 3Q, Q, 2Q, 3Q, . . . The present value of the perpetuity is $700,000 and the effective annual discount rate is 6%. Find Q. 2. A 30 year annuity-immediate has first payment $1200 and each subsequent payment increases by 0.5%. The payments are monthly and the annual effective rate is 8%. Find the accumulated value of the annuity at the end of 30 years. 3....
Answer the following questions: What happens to the future value of some fixed dollar amount invested...
Answer the following questions: What happens to the future value of some fixed dollar amount invested today as the interest rate decreases? Why? What happens to the present value of some fixed dollar amount to be received in the future as the interest rate increases? Why? What happens to the present value of some fixed dollar amount to be received in the future as the time to receive the money decreases? Why? Which will have a higher present value, assuming...
Matt is considering purchasing one of two annuities. The first annuity, an ordinary annuity, will pay...
Matt is considering purchasing one of two annuities. The first annuity, an ordinary annuity, will pay $1,000 at the end of each quarter for 20 years. The second annuity, an annuity due, will pay $1,000 at the beginning of each quarter for 20 years. Which of the following statements is correct regarding these annuities? A. The present value of an ordinary annuity is equal to the present value of an annuity due. B. An ordinary annuity has a higher future...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT