Question

How much more is a perpetuity of $1600 worth than an annuity of the same amount for 31 years? Assume an annual interest rate of 6% and cash flows at the end of each period. Given annual compoundin

Answer 1

$4,576

Step-by-step explanation:

First we need to get the simple interest on $1600 for 31years a interest rate of 6%:

Simple interest = principal*rate*time/100

Given

principal = $1600

rate = 6%

time = 31years

SI = 1600*31*6/100

SI = 16*31*6

SI = $2,976

Next is to get the amount after 31 years

Amount = Principal+ Interest

Amount = $1600+$2,976

Amount = $4,576

The amount worth after 31years is $4,576