A 5-year annuity of ten $5,300 semiannual payments will begin 9 years from now, with the first payment coming 9.5 years from now. If the discount rate is 12 percent compounded monthly, what is the value of this annuity five years from now? What is the value three years from now? What is the current value of the annuity?
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A 5-year annuity of ten $5,300 semiannual payments
will begin 9 years from now, with the first payment coming 9.5 years from now. If the
discount rate is 12 percent compounded monthly, what is the value of this annuity
five years from now? What is the value three years from now? What is the current
value of the annuity?
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- Audrey Sanborn has just arranged to purchase a $550,000vacation home in the Bahamas with a 20 percent down payment. The mortgage hasa 6.1 percent stated annual interest rate, compounded monthly, and calls for equalmonthly payments over the next 30 years. Her first payment will be due one monthfrom now. However, the mortgage has an eight-year balloon payment, meaning thatthe balance of the loan must be paid off at the end of Year 8. There were no othertransaction costs or finance charges. How much will Audrey’s balloon payment bein eight years?Rollo Megabux has $1 million to invest in stocks orbonds. The percentage yield on each investment during thecoming year depends on whether the economy has a goodor a bad year (see Table 17). It is equally likely that theeconomy will have a good or a bad year.a If Rollo is risk-neutral, how should he invest hismoney?b For $10,000, Rollo can hire a consulting firm toforecast the state of the economy. The consulting firm’sforecasts have the following properties:P(good forecast|economy good) .80P(good forecast|economy bad) .20Should Rollo hire the consulting firm? What are EVSIand EVPI? Economy EconomyHas Good Has BadYear YearYield on stocks 22% 10%Yield on bonds 16% 14%You have recently won the super jackpot in the WashingtonState Lottery. On reading the fine print, you discover that you have the following twooptions:a. You will receive 31 annual payments of $250,000, with the first payment beingdelivered today. The income will be taxed at a rate of 28 percent. Taxes will bewithheld when the checks are issued.b. You will receive $530,000 now, and you will not have to pay taxes on this amount.In addition, beginning one year from today, you will receive $200,000 each yearfor 30 years. The cash flows from this annuity will be taxed at 28 percent.Using a discount rate of 7 percent, which option should you select?