Hector will receive 1,500 at the end of each year for 5 years. Jill will receive 1,000 at the end of each year for 10 years. At an annual effective interest rate of i, the present values of the two annuities are equal. Calculate i.

Hector will receive 1,500 at the end of each year for 5 years. Jill will receive 1,000 at the end of each year for 10 years. At an annual effective interest rate of i, the present values of the two annuities are equal. Calculate i.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 24P

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Question

Hector will receive 1,500 at the end of each year for 5 years.
Jill will receive 1,000 at the end of each year for 10 years.
At an annual effective interest rate of i, the present values of the two annuities are equal.
Calculate i.
a. 2754
O b. .1487
O c. .0718
O d. .9603
O e. 1.1487

Expert Solution

Step 1

Annuity refers to a stream of constant and periodic cash flows.

For example a sum of $100 being deposited every year for a period of 10 years can be said to be an annuity.

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