Consider two perpetuities (X and Y) at interest rate i. X provides level payments of $105 at the end of each year. Y provides a payment of $5 at the end of the first year, with payments increasing by $5 annually. Find i such that the present value of (X – Y) is a maximum. (Answer to the nearest .05%.)

Consider two perpetuities (X and Y) at interest rate i. X provides level payments of $105 at the end of each year. Y provides a payment of $5 at the end of the first year, with payments increasing by $5 annually. Find i such that the present value of (X – Y) is a maximum. (Answer to the nearest .05%.)

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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Annuity X pays $1,200 at each year-end for 15 years. Annuity Y pays $1,100 at the beginning of each year for 15 years. The effective annual rate is 8%. Which one is correct? Annuity X has a higher present value than Annuity Y. Annuity Y has a higher present value than Annuity X. Annuity X has the same present value as Annuity Y.
An investment is expected to result in equal payments of $25 at the end of each of the next 3 years (ordinary annuity). If the appropriate required rate of return (discount rate) is 5%, what is the present value of the annuity stream? (annual compounding) $68.08 $74.93 $21.60 O -$68.08
PLEASE, WRITE THE SOLUTION ON PAPER, EXPLAINING THE ENTIRE PROCESS, STEP BY STEP
For each of the following situations involving annuities, solve for the unknown. Assume that interest is compounded annually and that all annuity amounts are received at the end of each period. (i = interest rate, and n = number of years) (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided. Round your final answers to nearest whole dollar amount.) Present Value Annuity Amount i = n = 1. ? $2,400 8% 5 2. 533,082 140,000 ? 4 3. 583,150 180,000 9% ? 4. 530,000 75,502 ? 8 5. 235,000 ? 10% 4
For each of the following situations involving annuities, solve for the unknown. Assume that interest is compounded annually and that all annuity amounts are received at the end of each period. (i=interest rate, and n=number of years)(FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of 1$ and PVAD of $1) (Use appropriate factor (s) from the tables provided. Round your final answers to nearest whole dollar amount.) Present Value Annuity Amount i= n= ______________ $ 2,600 8% 5 507,866 135,000 _____ 4 661,241 170,000 9% ____ 540,000 78,557 _____ 8 230,000 _____________ 10% 4
K Find the payment made by the ordinary annuity with the given present value. $87,292; monthly payments for 20 years; interest rate is 3.7%, compounded monthly The payment is $ (Simplify your answer. Round to the nearest cent as needed.)
Find the payment that should be used for the annuity due whose future value is given. Assume that the compounding period is the same as the payment period. 7) $8000; quarterly payments for 8 years; interest rate 4.1%.
Find the amount accumulated FV in the given annuity account. HINT [See Quick Example 1 and Example 1.] (Assume end-of-period deposits and compounding at the same intervals as deposits. Round your answer to the nearest cent.) $2,300 is deposited quarterly for 10 years at 7% per year FV = $
A perpetuity of $1 each year, with the first payment due immediately, has a present value of $25 at an annual effective rate of i%. The owner exchanges it for another perpetuity with the first payment due immediately and subsequent payments due at two year intervals. What should the payment of the second perpetuity be, in order to keep the same interest rate, i%, and the same present value? A B с D E Less than $1.90 At least $1.90, but less than $1.94 At least $1.94, but less than $1.98 At least $1.98, but less than $2.02 $2.02 or more
Find the payment that should be used for the annuity due whose future value is given. Assume that the compounding period is the same as the payment period. $17,000; quarterly payments for 19 years; interest rate 9.3% The payment should be $ (Round to the nearest cent as needed.)
A 20-year annuity X has annual payments of $10,000 at the beginning of each year for 10 years, then annual payments of $20,000 at the beginning of each year for the next 10 years. A perpetuity Y has payments of Q at the end of each year for 10 years, then payments of 2Q at the end of each year thereafter. The present values of X and Y are equal when calculated using an annual effective interest rate of 5%. Find Q.
Investment A will make N annual payments of $300.00 with the first of the N payments due immediately. Investment A has a value of $20000.00. Investment B is an ordinary annuity that will make (N minus 1) annual payments of $300.00 with the first payment due in one year from today. If investment A and investment B have the same expected return, then what is the value of investment B?

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