To insure you, Assurances Nochance Ltd offers the following plan: you will pay 20 annual payments of $8,000 starting one year from today. Then, in year 21, you or your heirs will receive a pension for the following 15 years. The discount rate used by the company to calculate your pension is 6%. (a) What is the size of your annual pension? (b) If you could take a one‐time lump sum payment 25 years from today instead of the pension, how high would the equivalent lump sum payment have to be?

To insure you, Assurances Nochance Ltd offers the following plan: you will pay 20 annual payments of $8,000 starting one year from today. Then, in year 21, you or your heirs will receive a pension for the following 15 years. The discount rate used by the company to calculate your pension is 6%. (a) What is the size of your annual pension? (b) If you could take a one‐time lump sum payment 25 years from today instead of the pension, how high would the equivalent lump sum payment have to be?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 44P

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To insure you, Assurances Nochance Ltd offers the following plan: you will pay 20 annual payments of $8,000 starting one year from today. Then, in year 21, you or your heirs will receive a pension for the following 15 years. The discount rate used by the company to calculate your pension is 6%. (a) What is the size of your annual pension? (b) Ifyoucouldtakeaone‐timelumpsumpayment25yearsfromtodayinsteadofthepension,how high would the equivalent lump sum payment have to be?.
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