Joe can purchase one of two annuities: Annuity 1: A 10-year decreasing annuity immediate, with annual payments of 10, 9,8... 1. Annuity 2: A perpetuity-immediate with annual payments. The perpetuity pays 1 in year 1, 2 in year 2, 3 in year 3., and 11 in year 11. After year 11, the payments remain constant at 11. At an annual effective interest rate of i, the present value of Annuity 2 is twice the present value of Annuity 1. Calculate the value of Annuity 1. A 36.4 374 30.4

Joe can purchase one of two annuities: Annuity 1: A 10-year decreasing annuity immediate, with annual payments of 10, 9,8... 1. Annuity 2: A perpetuity-immediate with annual payments. The perpetuity pays 1 in year 1, 2 in year 2, 3 in year 3., and 11 in year 11. After year 11, the payments remain constant at 11. At an annual effective interest rate of i, the present value of Annuity 2 is twice the present value of Annuity 1. Calculate the value of Annuity 1. A 36.4 374 30.4

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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Question

Joe can purchase one of two annuities:
Annuity 1: A 10-year decreasing annuity-immediate, with annual payments of 10, 9, 8, 1.
Annuity 2: A perpetuity-immediate with annual payments. The perpetuity pays 1 in year 1, 2 in year 2, 3 in year 3., and 11 in year 11.
After year 11, the payments remain constant at 11.
At an annual effective interest rate of i, the present value of Annuity 2 is twice the present value of Annuity 1.
Calculate the value of Annuity 1.
A
8
с
D
36.4
37.4
38.4
394

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Assume that an annuity has an annual cash flow of $375 in Years 11 through 20 (10 cash flows). Also assume that the nominal annual interest rate that is appropriate for this annuity is 9 percent (compounded daily, and using a 365-day basis year). Given this information, determine the value o this annuity at Year 0. $ 838.62 $1,205.43 $960.89 $1,083.16 O $716.35
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A perpetuity-due with annual payments consists often level payments of X followed by a series of increasing payments. Beginning with the eleventh payment, each payment is 1.5% larger than the preceding payment. Using an annual effective interest rate of 5%, the present value of the perpetuity is 45,000. Calculate X. B C 1,679 E 1,696 1,737 D 1,763 1,781
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