FINS1613 Quiz: Quiz 1 Question Bank Annuities & Perpetuities Question E
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4.3 | Need help with 4.4 a and b at bottom. 4.3 is required to answerthis. Calculate the following values, assuming a discount rate of8%: | |
| a. | present value of a perpetuity (also called a perpetual annuity)of $50 received each year at the end of each year |
| b. | present value of an annuity of $50 received at the end of eachyear for 5 years |
| c. | present value of an annuity of $50 received at the end of eachyear for 10 years, with the first payment to be received at the endof the 6th year |
| d. | present value of a perpetuity of $50, with the first paymentreceived at the end of the 16th year. ANSWER: a. PV of perpetuity = A/i where A is annual payment &i is disc rate
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4.4 | a. | Show (with a time line, for example) that the perpetuity in4.3a. is exactly the same as the sum of the annuities andperpetuities in 4.3b. to 4.3d. |
| b. | Show that their present values add up to the same amount. |