A local bank advertises the following deal: Pay us $100 at the end of each year for 12 years and then we will pay you (or your beneficiaries) $100 at the end of each year forever. a. Calculate the present value of your payments to the bank if the interest rate available on other deposits is 5.75%. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Present value $ b. What is the present value of a $100 perpetuity deferred for 12 years if the interest rate available on other deposits is 5.75%. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Present value $ c. Is this a good deal? Yes No
A local bank advertises the following deal: Pay us $100 at the end of each year for 12 years and then we will pay you (or your beneficiaries) $100 at the end of each year forever. a. Calculate the present value of your payments to the bank if the interest rate available on other deposits is 5.75%. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Present value $ b. What is the present value of a $100 perpetuity deferred for 12 years if the interest rate available on other deposits is 5.75%. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Present value $ c. Is this a good deal? Yes No
Related questions
5.
| If you put up $52,000 today in exchange for a 6.50 percent, 16-year annuity, what will the annual cash flow be? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |
| Annual cash flow | $ |
6.
| Investment X offers to pay you $4,900 per year for nine years, whereas Investment Y offers to pay you $7,000 per year for six years. |
| Calculate the present value for Investment X and Y if the discount rate is 4 percent. (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16)) |
| Present value | |
| Investment X | $ |
| Investment Y | $ |
| Calculate the present value for Investment X and Y if the discount rate is 14 percent. (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16)) |
| Present value | |
| Investment X | $ |
| Investment Y | $ |
7.
| An investment offers $5,400 per year for 10 years, with the first payment occurring one year from now. |
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| If the required return is 5 percent, what is the value of the investment? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |
| Present value | $ |
| What would the value be if the payments occurred for 35 years? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |
| Present value | $ |
| What would the value be if the payments occurred for 65 years? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |
| Present value | $ |
| What would the value be if the payments occurred forever? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |
| Investment X offers to pay you $4,600 per year for nine years, whereas Investment Y offers to pay you $6,700 per year for six years. |
| Calculate the present value for Investment X and Y if the discount rate is 4 percent. (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16)) |
| Present value | |
| Investment X | $ |
| Investment Y | $ |
| Calculate the present value for Investment X and Y if the discount rate is 14 percent. (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16)) |
| Present value | |
| Investment X | $ |
| Investment Y | $ |
