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6. You are contemplating the purchase of a twenty-four year (variable) annuity that promises cash flows in the following pattern, repeating every four years: 1e 2 3 4e 24 $1,600 $1,500 $1,400 $1,300 21 22 23 $1,600 $1,500 $1,400 $1,300 Suppose you don't like the fluctuations in the amount of your annual benefits. a. What annual rate of return would you use to convert these (end-of-year) cash flows to equal annual (end-of-year) amounts if you required an APR of 14.4%, compounded monthly?

6. You are contemplating the purchase of a twenty-four year (variable) annuity that promises cash flows in the following pattern, repeating every four years: 1e 2 3 4e 24 $1,600 $1,500 $1,400 $1,300 21 22 23 $1,600 $1,500 $1,400 $1,300 Suppose you don't like the fluctuations in the amount of your annual benefits. a. What annual rate of return would you use to convert these (end-of-year) cash flows to equal annual (end-of-year) amounts if you required an APR of 14.4%, compounded monthly?

Intermediate Accounting: Reporting And Analysis
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
ChapterM: Time Value Of Money Module
Section: Chapter Questions
Problem 7MC
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6. You are contemplating the purchase of a twenty-four year (variable) annuity that promises cash flows in the following pattern, repeating every four years: 1e 2e 3e 4e 21e 24 22 23 $1,600- $1,500- $1,400 $1,300- $1,600 $1,500 $1,400 $1,300 Suppose you don't like the fluctuations in the amount of your annual benefits.e a. What annual rate of return would you use to convert these (end-of-year) cash flows to equal annual (end-of-year) amounts if you required an APR of 14.4%, compounded monthly?e b. Without prejudice to your answer in part a, suppose that your required annual rate of return is 15%, what equal annual (beginning-of-year) payments over the twenty-four year period would be equivalent to the cash flow stream depicted above?
Transcribed Image Text:6. You are contemplating the purchase of a twenty-four year (variable) annuity that promises cash flows in the following pattern, repeating every four years: 1e 2e 3e 4e 21e 24 22 23 $1,600- $1,500- $1,400 $1,300- $1,600 $1,500 $1,400 $1,300 Suppose you don't like the fluctuations in the amount of your annual benefits.e a. What annual rate of return would you use to convert these (end-of-year) cash flows to equal annual (end-of-year) amounts if you required an APR of 14.4%, compounded monthly?e b. Without prejudice to your answer in part a, suppose that your required annual rate of return is 15%, what equal annual (beginning-of-year) payments over the twenty-four year period would be equivalent to the cash flow stream depicted above?
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