QUESTION 4 1. Look at the formula for the present value of an annuity. What happens to the numerator as the number of period increases? What distinguishes an annuity from a perpetuity? Why there is no future value of a perpetuity? 11. Les Moore retired as president of Goodman Snack Foods Company but is currently on a consulting contract for RM35,000 per year for the next 10 years. a) If Mr. Moore's opportunity cost (potential return) is 10 percent, what is the present value of his consulting contract? b) Assume Mr. Moore will not retire for two more years and will not start to receive his 10 payments until the end of the third year, what would be the value of his deferred annuity? c) What is a deferred annuity? m. Larry Davis borrows RM80,000 at 14 percent interest toward the purchase of a home. His mortgage is for 25 years. a) How much will his annual payments be? (Although home payments are usually on a monthly basis, we shall do our analysis on an annual basis for ease of computation. We will get a reasonably accurate answer.) b) How much interest will he pay over the life of the loan? c) How much should he be willing to pay to get out of a 14 percent mortgage and into a 10 percent mortgage with 25 years remaining on the mortgage? Assume current interest rates are 10 percent. Carefully consider the time value of money. Disregard taxes