Suppose you have just retired and have $1 million in your retirement account. Your bank offers...
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Suppose you have just retired and have $1 million in your retirement account. Your bank offers an arrangement whereby the bank takes your $1 million now and pays you $75,000 at the end of each year for the next 25 years. If the interest rate is 6% p.a. (compounding yearly), does this sound like a fair deal? Question 2: Future Value / Investment horizon Suppose you set aside $3,000 at the beginning of each year for the next 5 years, and invest the money in a savings account. If the interest rate is 4% per year (compounding quarterly), what is the balance of your savings account at the end of the 5 years? Question 3: Perpetuities The Dutch water authority Stichtse Rijnlanden issued a perpetual bond in 1648. This is the oldest perpetual bond that I am aware of. Yale University currently owns one of these bonds, paying EUR136.20 at the end of each year. Suppose you want to invest in this bond, how much would you pay? Please assume the discount rate is 5% p.a. (compounding yearly.) Suppose you have just retired and have $1 million in your retirement account. Your bank offers an arrangement whereby the bank takes your $1 million now and pays you $75,000 at the end of each year for the next 25 years. If the interest rate is 6% p.a. (compounding yearly), does this sound like a fair deal? Question 2: Future Value / Investment horizon Suppose you set aside $3,000 at the beginning of each year for the next 5 years, and invest the money in a savings account. If the interest rate is 4% per year (compounding quarterly), what is the balance of your savings account at the end of the 5 years? Question 3: Perpetuities The Dutch water authority Stichtse Rijnlanden issued a perpetual bond in 1648. This is the oldest perpetual bond that I am aware of. Yale University currently owns one of these bonds, paying EUR136.20 at the end of each year. Suppose you want to invest in this bond, how much would you pay? Please assume the discount rate is 5% p.a. (compounding yearly.)
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Related Book For
Foundations of Finance The Logic and Practice of Financial Management
ISBN: 978-0132994873
8th edition
Authors: Arthur J. Keown, John D. Martin, J. William Petty
Posted Date:
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