Question: A perpetuity-due paying 5 every year has a present value of 90. An annuity-immediate paying 10 monthly for 5 years has the same effective rate

A perpetuity-due paying 5 every year has a present value of 90.

An annuity-immediate paying 10 monthly for 5 years has the same effective rate of interest what is the present value of this annuity?

Hint: To calculate the monthly annuity, you should find the present value of a 60 payment annuity using the monthly effective rate of interest that is equivalent to to the annual effective rate of interest that you derived from the perpetuity. That is find i ( 12 ) 12 to align the payment period with the interest conversion period.

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