Computation of value of perpetuity and annuity

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Reference no: EM139928

1. What is the value of perpetuity of $150 at 13%?

i) $1,120.45

ii) $1,153.85

iii) $1,167.43

iiii) $1,099.34

2. Congratulations! You have just won the Publishers Corporation Sweepstakes. You have been offered a lump sum of $1,000,000, or a lifetime (end-of-year) annuity of $100,000 per year. If you expect to live for 20 years and can earn an annual interest rate of 15 percent on your investments, which alternative should you choose (ignoring tax consequences)?

i) Take the million dollars

ii) Take the annuity

iii) Give it to your favorite Professor

iiii) Donate it to FSC parking facilities

Reference no: EM139928

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