Question

define and provide real-life example of the following concepts:

- Ordinary Annuity
- Perpetuity
- Annuity Due
- Annual Percentage Rate
- Effective Annual Rate

Answer #1

Ordinary annuity are equal end of the period payments in to an
investment account over a finite period of time . Examples

Coupons of Bond Payments

Perpetuity are securities or bonds that pay equal payments till
infinity.Examples: The UK government issued bonds called Consols
are perpetuity

Annuity Due are equal beginning of the period payments in to an
investment account over a finite period of time .Rent Payment or
lease agreements can be examples of annuity due.

Annual Percentage Rate is the annual cost of borrowing without
effects of number of compounding;Examples of APR : Banks state
their loan rate or savings rate at APR

EAR takes into account the interest rate due to number of
compounding.E.g Investors in securities use EAR rather than APR to
evaluate attractiveness of a security.

Please Discuss in case of Doubt

Best of Luck. God Bless

Please Rate Well

Define the term annuity and show on a time-line an
example of the following:
a) simple ordinary annuity, b) annuity due, and c)
perpetuity.

Consider the concepts of break-even and profit-loss analysis.
Define fixed and variable costs. Now provide real-life examples as
to each of the costs

Discuss the
difference between a growing annuity and a growing perpetuity.
Provide an example of each. Also explain the annuity transformation
method.

Matt is considering purchasing one of two annuities. The first
annuity, an ordinary annuity, will pay $1,000 at the end of each
quarter for 20 years. The second annuity, an annuity due, will pay
$1,000 at the beginning of each quarter for 20 years. Which of the
following statements is correct regarding these annuities?
A. The present value of an ordinary
annuity is equal to the present value of an annuity due.
B. An ordinary annuity has a higher
future...

Find the present value of an annuity due in perpetuity that pays
$75 at the beginning of each year for 20 years and increases by 4%
each year, starting at the beginning of the 21th year. Here assume
effective annual interest i = 7%.

Present value of an ordinary annuity and annuity due.
Jill Morris is presently leasing a small business computer from
Eller Office Equipment Company. The lease requires 10 annual
payments of $6,000 at the end of each year and provides the lessor
(Eller) with an 8% return on its investment. You may use the
following 8% interest factors:
9 Periods
10 Periods
11 Periods
Future Value of 1
1.99900
2.15892
2.33164
Present Value of 1
.50025
.46319
.42888
Future Value of...

Present value of an ordinary annuity and annuity due. (Show your
work)
Jill Morris is presently leasing a small business computer from
Eller Office Equipment Company. The lease requires 10 annual
payments of $6,000 at the end of each year and provides the lessor
(Eller) with an 8% return on its investment. You may use the
following 8% interest factors:
9 Periods 10
Periods 11 Periods
Future Value of
1
1.99900
2.15892
2.33164
Present Value of
1
.50025
.46319 ...

What is an annuity? Can you provide some examples of real-life
annuities?

Graham is the beneficiary of an annuity due. At an
annual effective interest rate of 5%, the present value of payments
is 123,000. Tyler uses the first-order Macaulay approximation to
estimate the present value of Graham’s annuity due at an annual
effective interest rate 5.4%. Tyler estimates the present value to
be 121,212. Calculate the modified duration of Graham’s annuity at
5%.

1. A perpetuity-due has monthly payments in this pattern: Q, 2Q,
3Q, Q, 2Q, 3Q, Q, 2Q, 3Q, . . . The present value of the perpetuity
is $700,000 and the effective annual discount rate is 6%. Find
Q.
2. A 30 year annuity-immediate has first payment $1200 and each
subsequent payment increases by 0.5%. The payments are monthly and
the annual effective rate is 8%. Find the accumulated value of the
annuity at the end of 30 years.
3....

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