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FINA velue: 100 points Your financial planner offers you two different investmen

ID: 2817254 • Letter: F

Question

FINA velue: 100 points Your financial planner offers you two different investment plans. Plan X is a $30,000 annual perpetuity. Plan Y is a 14-year, $35,000 annual annuity. Both plans will make their first payment one year from today At what discount rate would you be indifferent between these two plans? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, eg, 3216) Discount rate References eBook& Resources Difficulty 3 Chall Type here to search TOSHIBA

Explanation / Answer

Use goal seek in Excel

Rate of interest = 14.9117%

Discount rate 14.9117% Cash flows Year Discounted CF= cash flows/(1+rate)^year Cumulative cash flow         (201,184.676) 0                        (201,184.68)                     (201,184.68)              35,000.000 1                             30,458.18                     (170,726.50)              35,000.000 2                             26,505.73                   (144,220.771)              35,000.000 3                             23,066.18                     (121,154.59)              35,000.000 4                             20,072.96                     (101,081.63)              35,000.000 5                             17,468.17                       (83,613.47)              35,000.000 6                             15,201.39                       (68,412.08)              35,000.000 7                             13,228.76                       (55,183.32)              35,000.000 8                             11,512.11                       (43,671.22)              35,000.000 9                             10,018.22                       (33,652.99)              35,000.000 10                               8,718.20                       (24,934.80)              35,000.000 11                               7,586.87                       (17,347.93)              35,000.000 12                               6,602.35                       (10,745.58)              35,000.000 13                               5,745.58                          (5,000.00)              35,000.000 14                               5,000.00                                  (0.00)