A local bank advertises the following deal: "Pay us $100 at the end of each year for 11 years and then we will beneficiaries) $100 at the end of each year forever." a. Calculate the present value of your payments to the bank if the interest rate is 5.25%. Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Present value $ Present value 819.84 b. What is the present value of a $100 perpetuity deferred for 11 years if the interest rate is 5.25%? Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
A local bank advertises the following deal: "Pay us $100 at the end of each year for 11 years and then we will beneficiaries) $100 at the end of each year forever." a. Calculate the present value of your payments to the bank if the interest rate is 5.25%. Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Present value $ Present value 819.84 b. What is the present value of a $100 perpetuity deferred for 11 years if the interest rate is 5.25%? Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
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:A local bank advertises the following deal: "Pay us $100 at the end of each year for 11 years and then we will pay you (or your
beneficiaries) $100 at the end of each year forever."
a. Calculate the present value of your payments to the bank if the interest rate is 5.25%.
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
Present value
Present value
b. What is the present value of a $100 perpetuity deferred for 11 years if the interest rate is 5.25%?
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
c. Is this a good deal?
$
Yes
No
819.84
Expert Solution
Step 1: Define=perpetuity
In perpetuity is type of annuity in which there are payments forever and for indefinite period of time and forever.
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