1)An asset promises to pay $60 in each of the next three years. Assume the rate of discount is 5% for each of the years. a) Calculate its price the “long” way b) Calculate its price using the annuity formula. 2) For the annuity in #1, what happens to it price if the rate of discount increase to 6%? 3) For the annuity in #2 what happens to it price if: a) its maturity is raised to four years? b) it never matures (a “perpetuity”)?
Mortgages
A mortgage is a formal agreement in which a bank or other financial institution lends cash at interest in return for assuming the title to the debtor's property, on the condition that the obligation is paid in full.
Mortgage
The term "mortgage" is a type of loan that a borrower takes to maintain his house or any form of assets and he agrees to return the amount in a particular period of time to the lender usually in a series of regular equally monthly, quarterly, or half-yearly payments.
1)An asset promises to pay $60 in each of the next three years. Assume the rate of discount is 5% for each of the years.
a) Calculate its price the “long” way
b) Calculate its price using the
2) For the annuity in #1, what happens to it price if the rate of discount increase to 6%?
3) For the annuity in #2 what happens to it price if:
a) its maturity is raised to four years?
b) it never matures (a “perpetuity”)?
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