**Question 11:**Jeff bought an increasing perpetuity-due with annual payments starting at 5 and increasing by 5 each year until the payment reaches 100. The payments remain at 100 thereafter. The annual effective interest rate is 7.5%. Determine the present value of this perpetuity.**Options:**A. 700 B. 785 C. 760 D. 735 E. 810 ---**Explanation:**The problem involves calculating the present value of a perpetuity where payments start small and increase linearly until they reach a fixed amount, after which they remain constant. The solution will involve calculating the present value of the increasing payments and then adding the value of the perpetuity of constant payments.

Perpetuity refers to a series of periodic payments that are made in perpetuity, i.e., there is no…

Jeff bought an increasing perpetuity-due with annual payments starting at 5 and increasing by 5 each year until the payment reaches 100. The payments remain at 100 thereafter. The annual effective interest rate is 7.5%. Determine the present value of this perpetuity. A. 700 B. 785 C. 760 D. 735 E. 810

Jeff bought an increasing perpetuity-due with annual payments starting at 5 and increasing by 5 each year until the payment reaches 100. The payments remain at 100 thereafter. The annual effective interest rate is 7.5%. Determine the present value of this perpetuity. A. 700 B. 785 C. 760 D. 735 E. 810

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

See similar textbooks

Similar questions

9. Implied interest rate and period Consider the case of the following annuities, and the need to compute either their expected rate of return or duration. Ryan inherited an annuity worth $3,280.16 from his uncle. The annuity will pay him five equal payments of $800 at the end of each year. The annuity fund is offering a return of Ryan's friend, Sebastian, wants to go to business school. While his father will share some of the expenses, Sebastian still needs to put in the rest on his own. But Sebastian has no money saved for it yet. According to his calculations, it will cost him $30,044 to complete the business program, including tuition, cost of living, and other expenses. He has decided to deposit $4,200 at the end of every year in a mutual fund, from which he expects to earn a fixed 7% rate of return. It will take approximately for Sebastian to save enough money to go to business school.
10
Katie is planning to receive an annuity of $7,545 per year for the next 38 years as part of her retirement plan. The interest rate is 0.06 per annum compounded annually. Calculate the present value (PV) of this annuity $6,191.79 $1,484.60 $4,920.36 $5,190,960.00 $112,013.21
What's the present value of a perpetuity that pays $2,200 per year if the appropriate interest rate is $%? O $47,960.00 $49,720.00 O $48,400.00 $44,000.00 $36,520.00 4
How much more is a perpetuity of $1,500 worth than an annuity of the same amount for 20 years? Assume an interest rate of 10% and cash flows at the end of each period. O $2,229.65 O $1,486.44 O $1,635.08 $2,000.00
Find the amount of the ordinary annuity based on the information given. R = $10,500, 8% interest compounded semiannually for 8 years The amount of the ordinary annuity is (Round to the nearest dollar as needed.)
What is the present value of an annuity consisting of payments of $800 every month for 8 years, with the first cash flow occurring in one month, if the interest rate is 7% p.a., compounded monthly? Select one: a. $4889.84 b. $4777.04 c. $58678.05 d. $58649.67
Find the future value of an annuity in 16 years if you deposit $110 at the end of each compounding period into an account paying 3.00% compounded quarterly. O $9146.90 $ 8993.34 O $ 2217.26 O $ 8445.74
A man can sell his business for $800,000 cash or for $125,000 plus $12'I a. Find the present value of the annuity that is offered if money is worth 10%; compounded annually. b. If he takes the $800,000, spends $125,000 of it, and invests the rest in a 9-year annuity at 10%, compounded annually, what size annuity payment will he receive at the end of each year? c. Which is better, taking the $125,000 and the annuity or taking the cash settlement? a. Find the present value of the annuity that is offered if money is worth 10%, compounded annually. (Type an integer or decimal rounded to the nearest cent as needed.)
Go.4
How much more is a perpetuity of $6,000 worth than an annuity of the same amount for 10 years? Assume an interest rate of 9% and cash flows at the end of each year. a. $99,212 b. $34,740 c. $58,097 d. $28,161
If $1000 is deposited at the end of each year for 5 years into an ordinary annuity earning 8.99% compounded annually, construct a balance sheet showing the interest earned during each year and the balance at the end of each year. Complete the balance sheet. Period Amount Interest Balance 1 $1000.00 2 $1000.00 3 $1000.00 4 $1000.00 $ $4 $1000.00 $4 $ (Round to the nearest cent as needed.)

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

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

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

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

SEE MORE TEXTBOOKS