Determine the difference in annual worth between an investment of $100,000 per year for 50 years and an investment of $100,000 per year forever at an interest rate of (a) 5% and (b) 10% per year. Compare the two differences.
What will be an ideal response?
(a) AW 50 = 100,000(A/P,5%,50)
= 100,000(0.05478)
= $5478
AW ? = Pi = 100,000(0.05)
= $5,000
Difference is $478
(b) AW 50 = 100,000(A/P,10%,50)
= 100,000(0.10086)
= $10,086
AW ? = Pi = 100,000(0.10)
= $10,000
Difference is $86, a lot smaller than at 5% per year
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