Your client is considering two alternate investments - one a perpetuity and the other an annuity....
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Your client is considering two alternate investments - one a perpetuity and the other an annuity. The perpetuity pays $1000 in perpetuity from the start of year 4 onwards. The annuity pays $3,000 each six months period over 6 years. This annuity also has a lump sum payment at maturity (at the end of the 6th year) of $8,000. If the client can achieve a rate of return of 6% per annum and can only buy one of the investments today for $16,000, which of the investments would you suggest and why? Your client is considering two alternate investments - one a perpetuity and the other an annuity. The perpetuity pays $1000 in perpetuity from the start of year 4 onwards. The annuity pays $3,000 each six months period over 6 years. This annuity also has a lump sum payment at maturity (at the end of the 6th year) of $8,000. If the client can achieve a rate of return of 6% per annum and can only buy one of the investments today for $16,000, which of the investments would you suggest and why?
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