At the beginning of 1965, Mr. A, 47 yrs old, signed a contract with Mrs. C, who claimed to be 90 years old: he would pay her 30,000 French Francs at the end of each year until she died, at which point he would inherit her Paris apartment. Assuming a 90yr old woman has a 40% chance of living 4 years (four payments), and a 60% chance of living 5 years (five payments), and an 8% discount rate. Mr. A died 30 years later, in 1995, at the age of 77. His children continued making payments after he died because Mrs. C survived until the end of 1997 (supposedly at the age of 122). A) What would the PV of the contract have been (in 1965) if one knew there would be 33 payments? B) What was the Future Value of this contract at the end of 1997?
At the beginning of 1965, Mr. A, 47 yrs old, signed a contract with Mrs. C, who claimed to be 90 years old: he would pay her 30,000 French Francs at the end of each year until she died, at which point he would inherit her Paris apartment. Assuming a 90yr old woman has a 40% chance of living 4 years (four payments), and a 60% chance of living 5 years (five payments), and an 8% discount rate. Mr. A died 30 years later, in 1995, at the age of 77. His children continued making payments after he died because Mrs. C survived until the end of 1997 (supposedly at the age of 122). A) What would the PV of the contract have been (in 1965) if one knew there would be 33 payments? B) What was the Future Value of this contract at the end of 1997?
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
Related questions
Question
At the beginning of 1965, Mr. A, 47 yrs old, signed a contract with Mrs. C, who claimed to be 90 years old: he would pay her 30,000 French Francs at the end of each year until she died, at which point he would inherit her Paris apartment. Assuming a 90yr old woman has a 40% chance of living 4 years (four payments), and a 60% chance of living 5 years (five payments), and an 8% discount rate.
Mr. A died 30 years later, in 1995, at the age of 77. His children continued making payments after he died because Mrs. C survived until the end of 1997 (supposedly at the age of 122). A) What would the PV of the contract have been (in 1965) if one knew there would be 33 payments? B) What was the Future Value of this contract at the end of 1997?
Solve in 10 min get 2 like
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps with 2 images
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education