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)?
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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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