Question

You are 20 years old. What is the fair price for a perpetuity that begins to...

You are 20 years old. What is the fair price for a perpetuity that begins to pay you $2,000

annually from when you become 60 years old, assuming a 5% market interest rate? (the

payment starts at the end of 60 years.)

What is the fair price if the financial product is not a perpetuity but an annuity which

pays $2,000 per year during your ages from 60 to 100 years (again at a 5% interest rate)?

Please explain with BA2 Calculator!

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Answer #1

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Answer:a. fair price for the perpetuity =$5,681.83

B.

N= 100-60

I/Y = 5%

PMT = 2000

CPT AND PRESS PV = -34,318.17

(VALUE AT T=60)

N= 60-40

I/Y = 5%

FV = -34,318.17

CPT AND PRESS PV = 4874.75

(VALUE AT T=20)

fair price for the annuity = $4,874.75

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