6. You are contemplating the purchase of a twenty-four year (variable) annuity that promises cash flows in the following pattern, repeating every four years: 1e 2 3 4e 24 $1,600 $1,500 $1,400 $1,300 21 22 23 $1,600 $1,500 $1,400 $1,300 Suppose you don't like the fluctuations in the amount of your annual benefits. a. What annual rate of return would you use to convert these (end-of-year) cash flows to equal annual (end-of-year) amounts if you required an APR of 14.4%, compounded monthly?
6. You are contemplating the purchase of a twenty-four year (variable) annuity that promises cash flows in the following pattern, repeating every four years: 1e 2 3 4e 24 $1,600 $1,500 $1,400 $1,300 21 22 23 $1,600 $1,500 $1,400 $1,300 Suppose you don't like the fluctuations in the amount of your annual benefits. a. What annual rate of return would you use to convert these (end-of-year) cash flows to equal annual (end-of-year) amounts if you required an APR of 14.4%, compounded monthly?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:6. You are contemplating the purchase of a twenty-four year (variable) annuity that promises cash flows in
the following pattern, repeating every four years:
1e
2e
3e
4e
21e
24
22
23
$1,600- $1,500- $1,400 $1,300-
$1,600 $1,500 $1,400 $1,300
Suppose you don't like the fluctuations in the amount of your annual benefits.e
a. What annual rate of return would you use to convert these (end-of-year) cash flows to equal annual
(end-of-year) amounts if you required an APR of 14.4%, compounded monthly?e
b. Without prejudice to your answer in part a, suppose that your required annual rate of return is 15%,
what equal annual (beginning-of-year) payments over the twenty-four year period would be
equivalent to the cash flow stream depicted above?
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