Question

Sandy purchases a perpetuity-immediate that makes annual payments. The first payment is 100, and each payment thereafter increases by 10. Danny purchases a perpetuity-due which makes annual payments of 180. Using the same annual effective interest rate, i > 0, the present value of both perpetuities are equal. Calculate i.

Answer 1

Answer:

The value of i = 10.2%

Explanation:

The complete working including all the steps have been done and attached as an image herewith. I will attempt to elaborate on those steps below:

Put down Sandy's and Danny's purchases first and equate them. Write down the expression for $d$ and substitute. You will obtain a quadratic equation that you can simply solve by applying the formula.