Perpetuities

9F
Learning Intention
› To be able to calculate different values for perpetuities
using the financial solver on your CAS.
Perpetuities
In an interest only investment in which the bank only pays
the interest that is gained.
As a result, the payments remain the same over the course
of the investment, and so does the value of the investment
itself.
One important thing to remember is that at the end of the
investment the bank has to pay back the full amount they
invested.
Calculating payments by hand
Formula:
An example
David invests $5000 at a rate of 6% per annum
compounding monthly. If David’s investment is interest
only, what is the value of the monthly payment David will
receive?
Answer:

David will receive $25 each month.

Using CAS
To solve for the payment on your CAS, you put in all the
information you have, but then set the number of payments
to 1 and solve for the payment per period.
Your turn
David wants to invest an amount of money so that he
receives $200 per quarter.
If the bank is currently offering a 8% interest rate on
investments, how much will David have to invest?
Calculate both by hand and using your financial solver.
QUESTION LIST
Ex. 9F: