30 Time-Value-of-Money and Amortization Worksheets
Answer: The present value of the savings is $122,891.34 with an ordinary
annuity and $135,180.48 with an annuity due.
Example: Computing Perpetual Annuities
To replace bricks in their highway system, the Land of Oz has issued
perpetual bonds paying $110 per $1000 bond. What price should you pay
for the bonds to earn 15% annually?
Answer: You should pay $733.33 for a perpetual ordinary annuity and
$843.33 for a perpetual annuity due.
A perpetual annuity can be an ordinary annuity or an annuity due
consisting of equal payments continuing indefinitely (for example, a
preferred stock yielding a constant dollar dividend).
Perpetual ordinary annuity
Compute present value
(ordinary annuity).
% .
PV=
122,891.34
Set beginning-of-period
payments.
& ] & V
BGN
Return to calculator mode. & U 0.00
Compute present value
(annuity due).
% .
PV=
135,180.48
To Press Display
Calculate the present value for a
perpetual ordinary annuity.
110 6 15 2 N
733.33
Calculate the present value for a
perpetual annuity due.
H 110 N
843.33
To Press Display
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