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An insurance agent is offering you the following additional retirement plan. You will get $7,500 every...

  1. An insurance agent is offering you the following additional retirement plan. You will get $7,500 every year for 4 years (beginning in a year from today at t = . After this period, your annual payment will grow for 6 years at a rate of 1% per year (ends at t = 10). If the discount rate is 4%, the fair price to pay for this plan today is approximately:
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Answer #1
Year Cashflows PVF at 4% Present value
1 7500 0.961538 7211.538
2 7500 0.924556 6934.172
3 7500 0.888996 6667.473
4 7500 0.854804 6411.031
5 7575 0.821927 6226.098
6 7650.75 0.790315 6046.499
7 7727.258 0.759918 5872.081
8 7804.53 0.73069 5702.694
9 7882.575 0.702587 5538.193
10 7961.401 0.675564 5378.437
Present value of cashflows 61988.2
Thus, the price to be paid today is $ 61988.2
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