Nara inherits a perpetuity from her grandfather that will pay here $2000 today and every year...

Nara inherits a perpetuity from her grandfather that will pay here $2000 today and every year forever. The annual interest rate is 3%.

a) How much is Nara's inheritance worth?

Nara decides to sell the perpetuity (for its present value) and instead buy an annuity due paying $P for the next 22 years.

b) What is $P?

She changes her mind again, and decides instead on an annuity due paying $4000 per year for n years, except for the last (nth) payment which is a drop payment.

c) What is n?

d) What is the amount of the final payment?

Expert Solution

jeff jeffy answered 2 years ago

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