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How much more is a perpetuity of $1,500 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. O $2,229.65 O $1,486.44 O $1,635.08 O $2,000.00

How much more is a perpetuity of $1,500 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. O $2,229.65 O $1,486.44 O $1,635.08 O $2,000.00

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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**Question:** How much more is a perpetuity of $1,500 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. **Options:** - $2,229.65 - $1,486.44 - $1,635.08 - $2,000.00 **Explanation:** This question requires the calculation of the difference in present value between a perpetuity and an annuity. A perpetuity provides $1,500 indefinitely, while the annuity provides $1,500 for 20 years. Both assume a 10% interest rate. The present value (PV) of these cash flows can be calculated and compared to find the difference.
Transcribed Image Text:**Question:** How much more is a perpetuity of $1,500 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. **Options:** - $2,229.65 - $1,486.44 - $1,635.08 - $2,000.00 **Explanation:** This question requires the calculation of the difference in present value between a perpetuity and an annuity. A perpetuity provides $1,500 indefinitely, while the annuity provides $1,500 for 20 years. Both assume a 10% interest rate. The present value (PV) of these cash flows can be calculated and compared to find the difference.
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