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5. Suppose you have an opportunity to buy an annuity that pays $3,500 at the end of each year for 6 years, at a 9% interest rate. What is the most you should pay for the annuity?

5. Suppose you have an opportunity to buy an annuity that pays $3,500 at the end of each year for 6 years, at a 9% interest rate. What is the most you should pay for the annuity?

Corporate Fin Focused Approach
Corporate Fin Focused Approach
5th Edition
ISBN:9781285660516
Author:EHRHARDT
Publisher:EHRHARDT
Chapter4: Time Value Of Money
Section: Chapter Questions
Problem 2STP
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PV of an ordinary annuity 5. Suppose you have an opportunity to buy an annuity that pays $3,500 at the end of each year for 6 years, at a 9% interest rate. What is the most you should pay for the annuity? FV of an ordinary annuity 6. Jeffery Johnson is saving $1,450,000 per year in a savings account that is paying annual compound interest of 6%. He intends to continue this for three years after which he will move it to JMMB's long term fund which pays interest of 8% per annum compounded semi-annually. į. How much would he be able to transfer to JMMB after 3 years? How much money will he have at the end of 8 years from today? ii. FV of an ordinary annuity due 7. An annuity makes 25 annual payments of $2,000 with the first payment coming today. What is the future value of this as of 25 years from now if the interest rate is 9.5%?
Transcribed Image Text:PV of an ordinary annuity 5. Suppose you have an opportunity to buy an annuity that pays $3,500 at the end of each year for 6 years, at a 9% interest rate. What is the most you should pay for the annuity? FV of an ordinary annuity 6. Jeffery Johnson is saving $1,450,000 per year in a savings account that is paying annual compound interest of 6%. He intends to continue this for three years after which he will move it to JMMB's long term fund which pays interest of 8% per annum compounded semi-annually. į. How much would he be able to transfer to JMMB after 3 years? How much money will he have at the end of 8 years from today? ii. FV of an ordinary annuity due 7. An annuity makes 25 annual payments of $2,000 with the first payment coming today. What is the future value of this as of 25 years from now if the interest rate is 9.5%?
FV of a lump sum 1. Apple's 2019 sales were $200 million. If sales grow at 8.5% per year, what will be the sales10 years later, in 2029, in millions? PV of a lump sum 2. Suppose a government bond will pay $1,000 four years from now. If the going interest rate on 4-year government bonds is 6%, how much is the bond worth today? Interest rate on a simple lump sum investment| 3. The Bank of Jamaica offers to sell you a bond for $813.81. No payments will be made until the bond matures 8 years from now, at which time it will be redeemed for $1,000. What interest rate would you earn if you bought this bond at the offer price? Number of periods 4. Grace Kennedy's 2019 earnings per share (EPS) were $4, and its growth rate during the prior 5 years was 12.0% per year. If that growth rate were maintained, how long would it take for the company's EPS to double? PV of an ordinary annuity 5. Suppose you have an opportunity to buy an annuity that pays $3,500 at the end of each year for 6 years, at a 9% interest rate. What is the most you should pay for the annuity?
Transcribed Image Text:FV of a lump sum 1. Apple's 2019 sales were $200 million. If sales grow at 8.5% per year, what will be the sales10 years later, in 2029, in millions? PV of a lump sum 2. Suppose a government bond will pay $1,000 four years from now. If the going interest rate on 4-year government bonds is 6%, how much is the bond worth today? Interest rate on a simple lump sum investment| 3. The Bank of Jamaica offers to sell you a bond for $813.81. No payments will be made until the bond matures 8 years from now, at which time it will be redeemed for $1,000. What interest rate would you earn if you bought this bond at the offer price? Number of periods 4. Grace Kennedy's 2019 earnings per share (EPS) were $4, and its growth rate during the prior 5 years was 12.0% per year. If that growth rate were maintained, how long would it take for the company's EPS to double? PV of an ordinary annuity 5. Suppose you have an opportunity to buy an annuity that pays $3,500 at the end of each year for 6 years, at a 9% interest rate. What is the most you should pay for the annuity?
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