24. Perpetuity value An insurance company offersa perpetuity for $100,000 that p

Question

24. Perpetuity value An insurance company offersa perpetuity for $100,000 that pays $600 per month indefinitely. If we assume an interest rate of 5% (com pounded continuously) for the received income, is the perpetuity a wise purchase? 25. Present value A charitable organization receives donations from a corporate trust continually at the rate off(t) 8000e0.01t dollars per year t years from now. If the money is invested at 5.5% interest (compounded continuously) and the donations continue indefinitely, what is the present value of the income? 26. Present value A family owns an apartment build- ing that is estimated to generate income at a rate of f(t) = 250.000e 0.025 t dollars per year t years from now If we assume a 6.3% interest rate on the income, and the building stays within the family indefinitely, what is the present value of the income?

Explanation / Answer

Perpetuity is wise option, as it has present value of $144,000 which is more than $100,000

25

Present value of donation is $145,454.55

26.

24. perpetuity value First Lets calculate the value of perpetuity i.e. $100,000 and the present value of $600 per month at 5%

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