From a lawsuit, you have been awarded a 31-payment, constant growth annuity. The first payment is...

  

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From a lawsuit, you have been awarded a 31-payment, constant growth annuity. The first payment is at Year O and is equal to $380, and each subsequent payment will be paid in 16 month intervals, with the final payment at Year 40. Further, payments will grow at a constant growth rate of 4 percent (payment 2 will be $380 x 1.04 = $395.20, etc.). The appropriate discount/compounding rate for this constant growth annuity is a nominal annual rate of 3.0 percent, with monthly compounding. Given this information, determine the value, at Year 40, of this constant growth annuity. Assume that you wish to trade in your old car and buy a new car. The new car has a list price of $31,500.00 and you have been offered a 6-year (72-month) car loan at a nominal annual interest rate of 3.84 percent (monthly compounding). Also assume that you want your monthly payments to be no more than $340 a month and will walk away from the deal if they are higher. Given this information, determine the minimum trade-in that the dealer must offer you on your old car in order to get you to buy the new car. From a lawsuit, you have been awarded a 31-payment, constant growth annuity. The first payment is at Year O and is equal to $380, and each subsequent payment will be paid in 16 month intervals, with the final payment at Year 40. Further, payments will grow at a constant growth rate of 4 percent (payment 2 will be $380 x 1.04 = $395.20, etc.). The appropriate discount/compounding rate for this constant growth annuity is a nominal annual rate of 3.0 percent, with monthly compounding. Given this information, determine the value, at Year 40, of this constant growth annuity. Assume that you wish to trade in your old car and buy a new car. The new car has a list price of $31,500.00 and you have been offered a 6-year (72-month) car loan at a nominal annual interest rate of 3.84 percent (monthly compounding). Also assume that you want your monthly payments to be no more than $340 a month and will walk away from the deal if they are higher. Given this information, determine the minimum trade-in that the dealer must offer you on your old car in order to get you to buy the new car.

Answer rating: 100% (QA)

Solution To determine the value of the constant growth annuity at Year 40 we can use th... View the full answer