Your father asked for your help. He has been offered an annuitythat will pay him...

Your father asked for your help. He has been offered an annuity that will pay him $1,933 per month for 23 years. He thinks that the fair return should be 4.4%. What is the most he should be willing to pay for it today?

Solutions

Expert Solution

Formula: The present value of an ordinary annuity (PV)

PV = C× [1-(1+r)^-n]/r

PV = Present value (The cummulative amount available at Present)

C= Periodic cash flow.

r =effective interest rate for the period.

n = number of periods.

PV = 1933× [1-(1+0.3666%)^-276]/0.3666%

PV = $335,200.84

Answer: he should be willing to pay $335,200.84

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

Your brother has asked you to help him with choosing an investment. He has $6,500 to...

Your brother has asked you to help him with choosing an investment. He has $6,500 to invest today for a period of two years. You identify a bank CD that pays an interest rate of 0.0400 annually with the interest being paid quarterly. What will be the value of the investment in two years? Round to two decimal places.

During your meeting with Joe, he advises that his employer has offered him a position for...

During your meeting with Joe, he advises that his employer has offered him a position for 3 years in Thailand. Joe seeks your advice on residence issues for Australian taxations purposes. In particular Joe wants to understand impact on any Non Australian assets he owns (Joe currently has overseas shares valued at $150,000 and a overseas property in Singapore valued at $1.5million). Joe also wants to understand what tests will be applied to determine his residency. 2019-2020

Wilbur has been offered a job at a salary that would put him in the 24%...

Wilbur has been offered a job at a salary that would put him in the 24% marginal tax bracket. In addition to his salary, he would receive health insurance coverage. Another potential employer does not offer health insurance but has agreed to match the first offer on an after-tax and insurance basis. The cost of health insurance comparable to that provided by the other potential employer is $9,000 per year. How much more in salary must the second potential employer...

Your brother wants to borrow 10,000 from you. He has offered to pay you back $13,250...

Your brother wants to borrow 10,000 from you. He has offered to pay you back $13,250 in a year. If the cost of capital of this investment opportunity is 9% what is its NPV? Should you undertake the investment opportunity? calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged. If the cost of capital of this investment opportunity is 12 % ------ What is its NPV?...

Wilbur has been offered a job at a salary that would put him in the 24% marginal tax bracket.

Wilbur has been offered a job at a salary that would put him in the 24% marginal tax bracket. In addition to his salary, he would receive health insurance coverage. Another potential employer does not offer health insurance but has agreed to match the first offer on an after tax and insurance basis. The cost of the health insurance comparable to that provided by the other potential employer is $9,000 per year. How much more in salary must the second...

Arthur, the ruler of Avalon, has asked for your help with the economy of his country....

Arthur, the ruler of Avalon, has asked for your help with the economy of his country. Arthur's economic minister provides you with the following information: Work-eligible population: 30 million Labor force: 24 million Employed people: 21 million Frictionally unemployed people: 2 million Structurally unemployed people: 1.5 million Arthur would like to know whether his kingdom is enjoying an expansion or suffering a recession. See if you can advise him. Give all numeric answers to two decimals. King Arthur, right now...

1) Sacha’s mother has brought him to the doctor's office because he has been misbehaving at...

1) Sacha’s mother has brought him to the doctor's office because he has been misbehaving at home and at school and never seems to listen to anything the adults say to him. His mother noticed that he does not respond when she calls his name, and he often seems to live in his own world. Now that he has entered kindergarten, his teacher also reports that Sacha does not seem to respond quickly and has limited vocabulary. How should the...

A. Your best friend has asked to assist him in making the best investment out of...

A. Your best friend has asked to assist him in making the best investment out of the following options. Which would you advise him to choose and why? SHOW WORKINGS TO JUSTIFY YOUR ANSWER. Option 1: $12,000 in 5 years’ time at 6 percent interest. Option 2: $15,000 in 2 years’ time at 9 percent interest. Option 3: $15,000 today. No strings attached. Option 4: $5,000 each year for 2 years at 7 percent interest compounded semi-annually. B. Betty Kay...

Sam was injured in an accident and the insurance company has offered him the choice of...

Sam was injured in an accident and the insurance company has offered him the choice of 25,000 per year for 15 years with the first payment being made today or lump sum if a fair return is 7.5% how large must a lump-sum be to have him as well off financially as with the annuity

Critical thinking 1) Sacha’s mother has brought him to the doctor's office because he has been...

Critical thinking 1) Sacha’s mother has brought him to the doctor's office because he has been misbehaving at home and at school and never seems to listen to anything the adults say to him. His mother noticed that he does not respond when she calls his name, and he often seems to live in his own world. Now that he has entered kindergarten, his teacher also reports that Sacha does not seem to respond quickly and has limited vocabulary. How...

Subjects