Annuity A has 20 years annual payments as follows:- i) ii) iii) The first payment is 1000 made at the end of the first year. The subsequent payments increase by 3% from the previous years. The effective interest rate is 5% per annum. Annuity B has 20 years annual payments as follows:- i) ii) iii) The first payment is X made at the end of the first year. The subsequent payments increase by X from the previous years. The effective interest rate is 6% per annum. Annuity C is an annuity immediate of 20-year annual level payments with effective interest rate of 7% per annum.
Annuity A has 20 years annual payments as follows:- i) ii) iii) The first payment is 1000 made at the end of the first year. The subsequent payments increase by 3% from the previous years. The effective interest rate is 5% per annum. Annuity B has 20 years annual payments as follows:- i) ii) iii) The first payment is X made at the end of the first year. The subsequent payments increase by X from the previous years. The effective interest rate is 6% per annum. Annuity C is an annuity immediate of 20-year annual level payments with effective interest rate of 7% per annum.
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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Question
![Annuity A has 20 years annual payments as follows:-
i)
ii)
iii)
Annuity
i)
ii)
iii)
The first payment is 1000 made at the end of the first year.
The subsequent payments increase by 3% from the previous years.
The effective interest rate is 5% per annum.
B has 20 years annual payments as follows:-
The first payment is X made at the end of the first year.
The subsequent payments increase by X from the previous years.
The effective interest rate is 6% per annum.
Annuity C is an annuity immediate of 20-year annual level payments with effective
interest rate of 7% per annum.
Evaluate,
(a) Present value of Annuity A
(b) X if present value of Annuity A is equal to present value of Annuity B.
stelua.
[3 marks]
(c) Level payment of Annuity C if present value of Annuity C is TWICE the present
value of Annuity A.
(d) Sum of future value of these annuities at the end of 20 years.
13 marks]
Preval
13 marks](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F07a5608b-6d33-4c63-b694-46c9ae7b5e4d%2Fe6c92cd4-54a6-4df6-a6ae-4738dc349a77%2Ff1fmrfb_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Annuity A has 20 years annual payments as follows:-
i)
ii)
iii)
Annuity
i)
ii)
iii)
The first payment is 1000 made at the end of the first year.
The subsequent payments increase by 3% from the previous years.
The effective interest rate is 5% per annum.
B has 20 years annual payments as follows:-
The first payment is X made at the end of the first year.
The subsequent payments increase by X from the previous years.
The effective interest rate is 6% per annum.
Annuity C is an annuity immediate of 20-year annual level payments with effective
interest rate of 7% per annum.
Evaluate,
(a) Present value of Annuity A
(b) X if present value of Annuity A is equal to present value of Annuity B.
stelua.
[3 marks]
(c) Level payment of Annuity C if present value of Annuity C is TWICE the present
value of Annuity A.
(d) Sum of future value of these annuities at the end of 20 years.
13 marks]
Preval
13 marks
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