Question

Q1) Maya, Naomi, and Oksana each own a level pay annuity. All three annuities are monthly pay annuities immediate and have the same present value but they have different terms.
a) Maya’s annuity lasts 5 years and pays $750 per month but it doesn’t start for 5 years. The interest rate is i(4) = 5%. What is the present value of Maya’s annuity?

b) Naomi’s annuity also lasts 5 years but it starts right away. How much are her monthly payments?

c) Oksana’s annuity starts today and lasts 10 years. Her payments are one half of Maya’s payments, but her annuity uses a different interest rate. Find the effective monthly rate for her annuity (so that it has the same PV as Maya’s and Naomi’s).

d) Convert the effective monthly rate from c) to a nominal annual rate compounded quarterly.

Answer 1