Assume you have invested $10,000 into a bank at an interest rate of 6% per year. The bank has promised to pay you ŞX every year starting in year one and continuing forever, in addition to $7X every five years starting in year five and continuing forever. Calculate the value of X.

Assume you have invested $10,000 into a bank at an interest rate of 6% per year. The bank has promised to pay you ŞX every year starting in year one and continuing forever, in addition to $7X every five years starting in year five and continuing forever. Calculate the value of X.

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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Suppose you are going to receive $11,000 per year for 8 years. The appropriate interest rate is 11 percent per year. Requirement 1: What is the present value of the payments if they are in the form of an ordinary (a)annuity (cash flow starts at the end of the first compounding period)? (Click to select) (b) What is the present value if the payments are an annuity due (cash flow starts at the beginning of the first compounding period)? (Click to select) Requirement 2: (a)Suppose you plan to invest the payments for 8 years, what is the future value if the payments are an ordinary annuity? (Click to select) (b)Suppose you plan to invest the payments for 8 years, what is the future value if the payments are an annuity due? (Click to select)
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