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Solved Problems in Perpetuity

This document contains 10 math problems involving calculating the present value of perpetuities - investments that provide a constant stream of payments forever - at different interest rates. Each problem provides the parameters such as the annual or semi-annual payment amount, interest rate, and timing of payments. The solutions show the step-by-step mathematical calculations to determine the present value in each case.

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John Nicole Villas Capulong
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18K views4 pages

Solved Problems in Perpetuity

This document contains 10 math problems involving calculating the present value of perpetuities - investments that provide a constant stream of payments forever - at different interest rates. Each problem provides the parameters such as the annual or semi-annual payment amount, interest rate, and timing of payments. The solutions show the step-by-step mathematical calculations to determine the present value in each case.

Uploaded by

John Nicole Villas Capulong
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Perpetuity

Problem No. 1.

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

Solution:

P= A +
P= 70,000 +
P= P1, 236, 666.67

Problem No. 2.

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

Solution:

P=
P=
P=1,666,666.67

Problem No. 3.

500,000 are deposited in 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 the equal annual withdrawal.

Solution:

(1+ )2=(1+i)1
i=0.0816
P=
A= 500,000(0.0816)
A= 40,800
Problem No. 4.

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.

Solution:

( )
P= - ( )
( )
P= - ( ) ( )
P= 74,043.22

Problem No. 5.

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

Solution:
Amount needed now for perpetual payment:
P=
P=
P= 200,000
Amount 30 years ago:
F= P(1+i)n
200,000= P(1+.05)30
P= 46,275.50

Problem No. 6.

If money is worth 9%, find the present value of a perpetuity of P120, 500 payable at the
beginning of each year.

Solution:

P= A +
P= 120,500 +
P= P1,459,388.89
Problem No. 7.

Find the present value of a perpetuity of P5, 000 payable semi-annually if money is worth 7%
compounded quarterly.

Solution:

(1+ )4= (1+i)2


i= 0.035
P=
P= 142,857.14

Problem No. 8.

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

Solution:

(1+ )4=(1+i)2
i= 0.046
P=
P=
P= 659,250.103

Problem No. 9.

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.

Solution:

( )
P= - ( )
( )
P= - ( ) ( )
P= 702,953.45
Problem No. 10.

Value a perpetuity of P50, 000 per year (i= 15%).

Solution:

P=
P=
P= P333, 333.33

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