Answer the following question. Ensure that your responses provide detailed solutions for the problem-solving items.

1. What is the difference between Annuity and Perpetuity?

Perpetuity and an annuity are similar instruments in that both offer a fixed set of cash
flows over time. However, the key difference between them is that annuities have a
predetermined end date, known as the “maturity date,” whereas perpetuities are intended
to last forever.
Solve the following perpetuity problems

2. If money is worth 6%, find the present value of a perpetuity of P70,000 payable at the beginning of each year.

3. What present sum would be needed for the annual end-of-year payments of P250,000 each, if money is worth
15%.

4. 500,000 are deposited in a savings account that pays 8% interest compounded semi-annually. Equal annual
withdrawals are to be made from the account, beginning one year from now and continuing forever. Compute
the maximum amount of the equal annual withdrawal.
5. If money is worth 5% obtain the present value of a perpetuity of P4,500 payable annually when the first payment
due at the end of 5 years.

6. What amount of money deposited 30 years ago at 5% interest would provide perpetual payment of P10,000 per
year?

7. If money is worth 9%, find the present value of a perpetuity of P120,500 payable at the beginning of each year.
8. Find the present value of a perpetuity of P5,000 payable semi-annually if the money is worth 7% compounded
quarterly.

9. Find the present value in pesos of a perpetuity of P30,000 payable semi-annually if money is worth 9%
compounded quartetly.

10. If money is worth 7%, obtain the present value of a perpetuity of P64,500 payable annually when the first
payment due at the end of 5 years.
11. Value of perpetuity of P50,000 per year (i = 15%)

12. Example 1: Ram makes an investment of P 3,000 for two years. He gets a rate
of interest of 12%. Furthermore, calculate the future value of the investment.

13. Radha wants to retire from her job and get hold of P 3,000/month. She wants
the money to go to the future generation after she dies. She will earn an
 interest rate of 8% compounded annually. What is the total amount she will
need to achieve the perpetuity goal?

14. Suppose that the rate of discount is 7%. So, how much one must pay to
receive 50 that grows at an annual rate of 5%, forever?

15. If a company is projected to make $100,000 in year 10, and the company’s cost of
capital is 8%, with a long-term growth rate of 3%, the value of the perpetuity is?
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perpetuity/#Solved_Examples_on_Perpetuity