Question

Billy is offered two payment plans. One is a perpetuity-immediate paying $1000 every year at 10%...

Billy is offered two payment plans. One is a perpetuity-immediate paying $1000 every year at 10% effective interest per year. The other is an annuity-immediate paying $1450 every year at 8% per year for 10 years, plus an extra $500 with the 5th payment. Which payment plan has a larger present value?

Homework Answers

Answer #1

note for value of 500 period 4 is taken because acutally 4 years competed to earn the interst as the payment is in the beging of the years. so completed period 0 year tp beging of 5th year is only 4 completed year.

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
A perpetuity-immediate makes the following pattern of payments every 3 years. It pays 3 at t...
A perpetuity-immediate makes the following pattern of payments every 3 years. It pays 3 at t = 1, then 1 at t = 2, then 4 at t = 3. In a list the payments are 3,1,4,3,1,4,3,1,4... and so on. Find the present value of this perpetuity assuming 8% effective interest per year.
The present values of the following three annuities are equal: (i) perpetuity-immediate paying 1 each year,...
The present values of the following three annuities are equal: (i) perpetuity-immediate paying 1 each year, calculated at an annual effective interest rate of 7.84%. (ii) 26-year annuity-immediate paying 1 each year, calculated at an annual effective interest rate of j%. (iii) n-year annuity-immediate paying 1 each year, calculated at an annual effective interest rate of (j−1)%. Calculate n.
A 10-year annuity immediate has a first payment of X. The payment increases by 100 each...
A 10-year annuity immediate has a first payment of X. The payment increases by 100 each year for 5 times and stays level afterwards. Under an effective annual rate of 6.5%, the present value of this annuity is 3733.2264. Calculate X。 please calculate it with step, don't use financial calculate with direct answer. Will rate it, thx:)
Nara inherits a perpetuity from her grandfather that will pay here $3000 today and every year...
Nara inherits a perpetuity from her grandfather that will pay here $3000 today and every year forever. The annual interest rate is 4%. a) How much is Nara's inheritance worth? Nara decides to sell the perpetuity (for its present value) and instead buy an annuity due paying $P for the next 28 years. b) What is $P? She changes her mind again, and decides instead on an annuity due paying $6000 per year for n years, except for the last...
Nara inherits a perpetuity from her grandfather that will pay here $4000 today and every year...
Nara inherits a perpetuity from her grandfather that will pay here $4000 today and every year forever. The annual interest rate is 6%. a) How much is Nara's inheritance worth? Nara decides to sell the perpetuity (for its present value) and instead buy an annuity due paying $P for the next 24 years. b) What is $P? She changes her mind again, and decides instead on an annuity due paying $8000 per year for n years, except for the last...
ANSWER BOTH QUESTIONS PLEASE 1. A perpetuity-immediate makes a payment of an amount K every three...
ANSWER BOTH QUESTIONS PLEASE 1. A perpetuity-immediate makes a payment of an amount K every three months. The present value of the perpetuity is $10,500. Interest is at a nominal annual rate of 6% compounded semiannually. In which of the following ranges is the amount K? 2. Deposits of $100 per month into an account start on January 1, 2015 and continue through December 1, 2034. The account earn a nominal annual interest rate of 6% compounded quarterly. Find the...
1. Perpetuities in arithmetic progression. If a perpetuity has first payment P and each payment increases...
1. Perpetuities in arithmetic progression. If a perpetuity has first payment P and each payment increases by Q, then its present value, one period before the first payment, is P/i + Q/i^2 Using this formula, find the present value of a perpetuity-immediate which has annual payments with first payment $360 and each subsequent payment increasing by $40, at annual interest rate 1.3%. The answer should be ($264,378.70). 2. Filip buys a perpetuity-immediate with varying annual payments. During the first 5...
An annuity immediate pays 200 every month for 10 years. Calculate the present value at the...
An annuity immediate pays 200 every month for 10 years. Calculate the present value at the following rates of interest: Annual effective interest rate of 6% Nominal interest rate convertible monthly of 8% Nominal rate of discount convertible once every two years of 4%
You are given a perpetuity that makes payments every two years, with a payment at the...
You are given a perpetuity that makes payments every two years, with a payment at the beginning of the year numbered 2n + 1, for n = 0, 1, 2, …, equal to 1/((n+1)(n+2)*3n). Find the present value of this perpetuity at time 0, given that the annual effective interest rate is 4.5%.  
An annuity-immediate has 20 annual payments starting at 5 and increasing by 10 every year. The...
An annuity-immediate has 20 annual payments starting at 5 and increasing by 10 every year. The annual effective rate of interest is 7%. Calculate the present value of this annuity. not a excel solution
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT