Your insurance company offered you an annuity that pays you $100 at the end of each year.
Question:
Your insurance company offered you an annuity that pays you $100 at the end of each year. The life of the annuity is 10 years. Assume that market interest rate you can earn on similar risky investments is 8%.
a. What should be the present value of this annuity?
b. If you are given the first payment immediately starting today, what should be the worth of this annuity?
c. Which payment mode will you accept? What will be basis of your decision under time value of money concept?
QUESTION:
Panther Tyres company Ltd. has announced initial public offering (IPO) of Rs. 50 per share. The company is not expected pay dividend but is expected to begin to do so in five years (at t = 5). The first dividend is expected to be Rs. 4.00 and to be received five years from today. That dividend is expected to grow at 6 percent into perpetuity. Suppose your required return is 10 percent.
What is the estimated current intrinsic value? Will you subscribe for Panther Tyres IPO?
Principles Of Managerial Finance
ISBN: 978-0136119463
13th Edition
Authors: Lawrence J. Gitman, Chad J. Zutter