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Differences between perpetuities and annuities

Describe the differences between perpetuities and annuities. Give examples of both types of products.

https://personal.vanguard.com/us/funds/byobjective/detail?category=LifeCycle
http://www.johnhancock.com/products/annuities.html

? Find one example of a perpetuity.
? Find one example of an annuity.
? How is the perpetuity structured?
? How is the annuity structured?
? Why would an investor prefer one product over the other?
? Keeping the time value of money in mind with respect to the initial cash out-lay, what does a preference of one product over the other say about the investors feeling of the time value of money?
? How does the time value of money impact the eventual returns of both products?
? If the investor had a short life expectancy, which investment would they prefer?
? If the investor had a long life expectancy, which investment would they prefer?

Solution Preview

Describe the differences between perpetuities and annuities. Give examples of both types of products.
Perpetuities are financial securities which provide periodic cash flows over an indefinite period of time or within the holder's lifetime while an annuity provides periodic cash flows within a specific period of time that is up to the securities' maturity or expiration date.

Find one example of a perpetuity
An example of a perpetuity is the United Kingdom's consols.

Find one example of an annuity.
An example of an annuity is the United States' sovereign 10 year ...

Solution Summary

The differences between perpetuities and annuities are examined. One example of each are determined.

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