13. Calculating Annuity Present Value An investment offers $5,650 per year for 1

Question

13. Calculating Annuity Present Value An investment offers $5,650 per year for 15 years, with the first payment occurring one year from now. If the required return is 8 percent, what is the value of the investment? What would the value be if the payments occurred for 40 years? For 75 years? Forever? The Perpetual Life Insurance Co. is trying to sell you Calculating Perpetuity Values an investment policy that will pay you and your heirs $12,000 per year forever required return on this investment is 4.7 percent, how much will you pay for the policy Suppose the Perpetual Life Insurance Co. told you the policy costs $275,000. At w interest rate would this be a fair deal? 14 15. Calculating EAR Find the EAR in each of the following cases APR Number of Times Compounded EAR 67% 2.4 9.8 8.4 Quarterly Monthly Daily Infinite

Explanation / Answer

Solution :- 1 Cashflow per year 5650 Rate of Return 8% Time (n) 15 years Present value annuity factor CF*PVAF(r,n) = 5650 * PVAF(8%,15) = 5650*8.559 = 48361.05 The Value of investment = 48361.05 In n = 40 years Present value annuity factor CF*PVAF(r,n) = 5650 * PVAF(8%,40) = 5650*11.9246 = 67373.99 The Value of investment = 67373.99 If n = 75 years Present value annuity factor CF*PVAF(r,n) = 5650 * PVAF(8%,75) = 5650*12.4611 = 70405.22 The Value of investment =70405.22 In amount received forever then value of investment is = CF/ke = 5650/8% = 70625 As per chegg policy there is need to solve one question only in case of many questions So dear ask other questions as a separate question

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