Question

Your subscription to Time T Magazine has run out and you can choose to renew it by paying $19.95 now and every year at this regular rate (ignore future inflation), or by paying for a lifetime subscription that costs $117.95 today. Payments for the regular subscription are made at the beginning of each year. Your annual opportunity cost (APY) is 6%. How many subscription payments would you need to make for the lifetime subscription to break even compared to the yearly deal? (Round up if necessary to obtain a whole number of payments.)

Answer 1

	LIFETIME SUBSCRIPTION COST	$117.95
	TO   BREAK EVEN:
	Present value of annual payment	$117.95
	Annualpayment at beginning of the years	$19.95
	Discount Rate=Opportunity cost=	6%
	Number of subscription payment tobreak even	6.992635	Using Excel NPER function with Rate=6%, Pmt=-19.95,PV=117.95,type=1(Beginning of year payment)
	Number of subscription payment tobreak even=	7	(Rounded to the nearest whole number)