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Formula sheet

Question 3 Your godmother, recently deceased, gifted you with $2,500 annually forever. This payment will increase by 2.5% every year. Part A If the rate of return on this investment is 8%, how much is it worth today? (Round to the nearest dollar) (3 marks) Part B If you choose to accept the value of this gift today (answer from Part A), and you invest the lumpsum in account paying 10.25% annually. How long would it take to accumulate $155,000 ? (3 marks) Question 4 What is an annuity and how does it differ from a perpetuity? Discuss the difference between an ordinary annuity and an annuity due. (4 marks) FV=PVx(1+r)tPV=FV/(1+r)tr=(FV/PV)1/t1t=ln(FV/PV)/ln(1+r) Chapter 6 Annuity (ordinary) PVA=C[r1(1+r)t1] FVA=C[r(1+r)t1] Annuity (due) PVAdue=C[r1(1+r)t1](1+r) FVAdue=C[r(1+r)t1](1+r) Perpetuity PV=C/r Growing Annuity GAPV=rgC[1((1+r)(1+g))t] Effective Annual Rate EAR=[1+mAPR]m1 Growing Perpetuity GPPV=rgC Annual Percentage Rate APR=m[(1+EAR)1/m1]