You have been offered the opportunity to buy an investment that pays guaranteed cash flows every...
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You have been offered the opportunity to buy an investment that pays guaranteed cash flows every year for a fixed period of time (ie, an annuity). There are two products available to you: Option A: pays guaranteed cash flows of $700 per year for the next 25 years. Option B: pays guaranteed cash flows of $700 per year forever! What is the most that you should you be willing to pay for these investments today if you need to earn a rate of return of 8.0%? a) The most you should be willing to pay for Option A should be: $ (Round to two decimal places.) b) The most you should be willing to pay for Option B should be: $ (Round to two decimal places.) c) Draw a conclusion based on your analysis here: how does the length of time that we expect to receive cash flows affect our estimate of their value? (Choose the best answer from the list below) OA. The value of these cash flows does NOT appear to change as the time period increases, it may not matter OB. Cash flows that last for a LONGER period of time appear to have MORE value, all else held equal OC. Cash flows that last for a LONGER period of time appear to have LESS value, all else held equal OD. No opinion / not sure how to think about this You have been offered the opportunity to buy an investment that pays guaranteed cash flows every year for a fixed period of time (ie, an annuity). There are two products available to you: Option A: pays guaranteed cash flows of $700 per year for the next 25 years. Option B: pays guaranteed cash flows of $700 per year forever! What is the most that you should you be willing to pay for these investments today if you need to earn a rate of return of 8.0%? a) The most you should be willing to pay for Option A should be: $ (Round to two decimal places.) b) The most you should be willing to pay for Option B should be: $ (Round to two decimal places.) c) Draw a conclusion based on your analysis here: how does the length of time that we expect to receive cash flows affect our estimate of their value? (Choose the best answer from the list below) OA. The value of these cash flows does NOT appear to change as the time period increases, it may not matter OB. Cash flows that last for a LONGER period of time appear to have MORE value, all else held equal OC. Cash flows that last for a LONGER period of time appear to have LESS value, all else held equal OD. No opinion / not sure how to think about this
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