Question

1. The first quarterly payment of $500 in a five-year annuity will be paid 2.5 years from now. Based on a discount rate of 6% compounded monthly, what is the present value of the payments today?                                                                                                                

Interim calculations should be to six decimals; final answer to the nearest cent.

2. A life insurance company pays investors 5% compounded annually on its five-year GICs. For you to be indifferent as to which compounding option you choose, what would the nominal rates have to be on GICs with quarterly compounding?

Interim calculations should be to 5 decimal places; final answer to the nearest .01%

3. What amount is required to fund a perpetuity that pays $8,000 at the beginning of each quarter? The funds can be invested to earn 5% compounded quarterly.

Interim calculations should be to 4 decimal places; final answer to nearest cent.

Answer 1