Question

In: Finance

(i). You are 20 years old. What is the fair price for a perpetuity that begins...

(i). You are 20 years old. What is the fair price for a perpetuity that begins to pay you $2,000

annually from when you become 60 years old, assuming a 5% market interest rate? (the

payment starts at the end of 60 years.)

(ii). What is the fair price if the financial product is not a perpetuity but an annuity which

pays $2,000 per year during your ages from 60 to 100 years (again at a 5% interest rate)?

Q _ Why is the price differential between the perpetuity in (i) and the annuity in (ii) is not

that large?

Solutions

Expert Solution

i)

ii)

Q)

jeff jeffy answered 2 years ago
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