Your financial planner offers you two different investment plans. Plan X is a $20,000 annual perpetuity. Plan Y is a 20-year, $28,000 annual annuity. Both plans will make their first payment one year from today.

a) At what discount rate would you be indifferent between these two plans?

b) Ignoring the discount rate, your financial planner tells you that some Investors choose Plan X and some others choose Plan Y. The reason is that investors prefer to look for an investment plan that fits their needs, such as for a mortgage, retirement, etc. Try to think about your needs, then pick one investment plan (Plan X or Plan Y) for yourself and explain your decision.

Answer rating: 100% (QA)

a Here we need to find the interest rate that makes us indifferent between an annuit... View the full answer