X


Payment

Question

Your financial planner offers you two different investmentplans. Plan X is a $22,000 annual perpetuity. Plan Y is a 10-year,$28,000 annual annuity. Both plans will make their first paymentone year from today. At what discount rate would you be indifferentbetween these two plans?

Discount Rate ___________ %

Solution

xxxxxx value xx perpetuity = xxxxxx xxxx flow / r = xxxxx/xxxxxxx xxxxx of xxxxxxy = xxxxxxy * [(x+x)^x - x]/x = xxxxx *[(x+x)^xx - 1]/r

These xxx shall xx xxxxxxxxxxx xx FV xx both xx xxxxx:xxxxx / r = 28000 * [(x+x)^xx - 1]/r

Solving xxxx for x, xx xxx r = 5.9696% xx xxxxxxxxxxxxyx.xx%

Payment



Payment