Question

It is January 1st, 2021, and you are setting up a perpetuity that will allow you...

It is January 1st, 2021, and you are setting up a perpetuity that will allow you to withdraw R dollars at the end of April and October every year, forever. Suppose that the stated APR of the perpetuity is r > 0.

Question 1 Determine the present value of the perpetuity if interest is compounded monthly.
Leave your answer in terms of R and r.

Question 2 Determine the present value of the perpetuity if interest is compounded continuously instead. Leave your answer in terms of R and r.

Question 3 Which of your answers (between Question 1 and Question 2) do you expect to be larger?
This question will be hard to answer mathematically, but you should be able to argue it using financial reasoning. In 5 sentences or less, justify your answer.

Homework Answers

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
It is January 1st, 2021, and you are setting up a perpetuity that will allow you...
It is January 1st, 2021, and you are setting up a perpetuity that will allow you to withdraw R dollars at the end of April and October every year, forever. Suppose that the stated APR of the perpetuity is r > 0. Question 1 Determine the present value of the perpetuity if interest is compounded monthly. Leave your answer in terms of R and r. Question 2 Determine the present value of the perpetuity if interest is compounded continuously instead....
Suppose that you are 30 years old, and making retirement plans. You are starting to contribute...
Suppose that you are 30 years old, and making retirement plans. You are starting to contribute $500 per month to your retirement account at the beginning of each month. You intend to do so until the age of sixty seven and then stop the contributions. You will retire at age 70 and want to know how much you'll have saved. You receive a 7% APR compounded monthly on your account. a) How much will you have if you allow interest...
Suppose that on January 1, 2018, you buy a bond for $2,000 that will pay interest...
Suppose that on January 1, 2018, you buy a bond for $2,000 that will pay interest of 3.6% per year compounded continuously for 20 years. You never withdraw any of the interest earned on the bond. (a) What will the bond be worth on January 1, 2038? (b) Suppose that on January 1, 2020, the prevailing rate of interest on bonds maturing on January 1, 2038 becomes 6% per year compounded continuously. Assume that the market value of your bond...
1, Your parents deposit $10,000 into your bank account and allow you to withdraw $500 every...
1, Your parents deposit $10,000 into your bank account and allow you to withdraw $500 every month for living expenses in 2 years to support your MBA education. What annual interest rate does the bank pay so that you will withdraw everything in 2 years? Please round your answer to the fourth decimal. For example, if your answer is 1%, you should input 0.0100. 2, A preferred stock pays an annual dividend of $1.01 per share forever. The appropriate interest...
How long will you really live for after you retire? Unfortunately, nobody knows the answer to...
How long will you really live for after you retire? Unfortunately, nobody knows the answer to this question. One approach to answering this age-old question is to consider this: how much should you have in your retirement account upon retiring so that you can withdraw a fixed sum forever? This may seem odd, but it is indeed possible. Suppose that you invest $PMT into your retirement account for 30 years at an average monthly APR of 12.5% (very possible with...
Answers currently posted for this question are incorrect. Today you opened up a local bank account....
Answers currently posted for this question are incorrect. Today you opened up a local bank account. Your plan is to make five $4,000 contributions to this account. The first $4,000 contribution will occur today and then every six months you will contribute another $4,000 to the account. (So your final $4,000 contribution will be made two years from today). The bank account pays a 6% APR that is compounded monthly. After two years, you plan to leave the money in...
a) on your sister’s 10th birthday, your parents want to invest a certain amount to enable...
a) on your sister’s 10th birthday, your parents want to invest a certain amount to enable her to withdraw R25 000 every six months from her 18th to her 24th birthday (both birthdays included). Calculate the sum they will have to invest if compounded interest is estimated at 12% per annum, compounded biannually. b) What is the present value of a perpetuity that pays R4 800 per year if the first payment does not begin until four years later and...
QUESTION 9 Suppose you plan to retire at age 70, and you want to be able...
QUESTION 9 Suppose you plan to retire at age 70, and you want to be able to withdraw an amount of $83,000 per year on each birthday from age 70 to age 100 (a total of 31 withdrawals). If the account which contains your savings earns 5.4% per year simple interest, how much money needs to be in the account by the time you reach your 70th birthday? (Answer to the nearest dollar.) Hint: This can be solved as a...
1. Today you deposited $15,000 into a 5-year CD that will pay 6 percent interest. How...
1. Today you deposited $15,000 into a 5-year CD that will pay 6 percent interest. How much will you withdraw from the account in 5 years? Round to the nearest cent. Do not include any unit (If your answer is $111.11, then type 111.11 without $ sign.) 2. You have a retirement account that earns 5 percent annual interest with the total account balance of $400,000. How much a year can you withdraw for next 20 years if your first...
You are about to buy a million dollar house with a 20 percent down payment. The...
You are about to buy a million dollar house with a 20 percent down payment. The mortgage has 5 percent stated annual interest rate, compounded monthly, and calls for equal monthly payments over the next 30 years. The first payment is due one month from now. What is your monthly mortgage payment? I know the answer si 4294.57 but I am having trouble understanding the second part of the question The mortgage terms require that at the end of year...