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Billy is offered two payment plans. One is a perpetuity-immediate paying $1000 every year at 10%...

Billy is offered two payment plans. One is a perpetuity-immediate paying $1000 every year at 10% effective interest per year. The other is an annuity-immediate paying $1450 every year at 8% per year for 10 years, plus an extra $500 with the 5th payment. Which payment plan has a larger present value?

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Answer #1

note for value of 500 period 4 is taken because acutally 4 years competed to earn the interst as the payment is in the beging of the years. so completed period 0 year tp beging of 5th year is only 4 completed year.

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