Today is time 0. A growing annuity pays a cash flow in each period between period...

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Today is time 0. A growing annuity pays a cash flow in each period between period 1 and period N, inclusive. The growing annuity pays a cash flow C at time 1. In every subsequent period, the cash flow paid grows at the growth rate g. The discount rate is r> g. Derive the present value of the growing annuity. Show each step of the derivation. b. An insurance firm sells an annuity for a fixed number of years. The firm pays $20,000 per year beginning next year for twenty five years. However, the yearly annuity is inflation- protected, so the yearly annuity payment increases by 1% in each year after the first. If the insurance firm never defaults and makes no profit, what is the price of the annuity today to the nearest penny? The interest rate is 4%. Today is time 0. A growing annuity pays a cash flow in each period between period 1 and period N, inclusive. The growing annuity pays a cash flow C at time 1. In every subsequent period, the cash flow paid grows at the growth rate g. The discount rate is r> g. Derive the present value of the growing annuity. Show each step of the derivation. b. An insurance firm sells an annuity for a fixed number of years. The firm pays $20,000 per year beginning next year for twenty five years. However, the yearly annuity is inflation- protected, so the yearly annuity payment increases by 1% in each year after the first. If the insurance firm never defaults and makes no profit, what is the price of the annuity today to the nearest penny? The interest rate is 4%.

Answer rating: 100% (QA)

To derive the present value of the growing annuity we can use the formula for the present value of a growing perpetuity and then adjust it for a finit... View the full answer