What is the relationship between the value of an annuity and the level of interest rates? Suppose you just bought a 15-year annuity of $6,800 per year at the current interest rate of 10 percent per year. What happens to the value of your investment if interest rates suddenly drop to 5 percent? What if interest rates suddenly rise to 15 percent?
Answer to relevant QuestionsThe PV of the following cash flow stream is $7,300 when discounted at 8 percent annually. What is the value of the missing cash flow? Year Cash flow 1 $1,500 2 ? 3 2,700 4 2,900 You are saving for the university education of your two children. They are two years apart in age; one will begin university 15 years from today and the other will begin 17 years from today. You estimate your children’s ...What is the equation for the PV of a growing perpetuity with a payment of C one period from today if the payments grow by C each period? For the company in Problem 6.19, what is the dividend yield? What is the expected capital gains yield? Problem 6.19 The next dividend payment by ECY Inc. will be $3.20 per share. The dividends are anticipated to maintain a 6 ...The annual earnings of Avalanche Skis Inc. will be $10 per share in perpetuity if the firm makes no new investments. Under such a situation, the firm would pay out all of its earnings as dividends. Assume the first dividend ...
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