What is the relationship between the value of an annuity and the level of interest rates? Suppose you just bought a 12-year annuity of $7,000 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 QuestionsYou’re prepared to make monthly payments of $125, beginning at the end of this month, into an account that pays 10 percent interest compounded monthly. How many payments will you have made when your account balance reaches ...A local finance company quotes a 17 percent interest rate on one-year loans. So, if you borrow $15,000, the interest for the year will be $2,550. Because you must repay a total of $17,550 in one year, the finance company ...On September 1, 2008, Susan Chao bought a motorcycle for $30,000. She paid $1,000 down and financed the balance with a five-year loan at a stated annual interest rate of 7.8 percent, compounded monthly. She started the ...A 10-year annual annuity due with the first payment occurring at date t = 7 has a current value of $85,000. If the discount rate is 9 percent per year, what is the annuity payment amount? Bond P is a premium bond with a 9 percent coupon. Bond D is a 5 percent coupon bond currently selling at a discount. Both bonds make annual payments, have a YTM of 7 percent, and have eight years to maturity. What is the ...
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