Question 1

(2 marks) b) Distinguish between annuity and perpetuity. (6 marks) () Sam received $12,345 for his services as financial consultant to the mayor's office of his hometown of Westfield. Sam says that his consulting work was his civic duty and that he should not receive any compensation. So, he has invested his paycheck into an account paying 3.98% annual interest and left the account in his will to the city of Westfield on the condition that the city could not collect any money from the account for 200 years. Estimate how much money will the city receive from Sam's generosity in 200 years. (4 marks) d) Your son will be attending an expensive university in 12 years. You deposit $5,000 per year for 12 years, at the beginning of today's period. Estimate how much money will be in the college fund 12 years from now if the fund earns 8% per year