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2. Bank X promises to pay you $5,200 per year for 8 years, whereas Bank Y offers to pay you $7,300 per year for 5
2. Bank X promises to pay you $5,200 per year for 8 years, whereas Bank Y offers to pay you $7,300 per year for 5 years. a) Which of these cash flow streams has the higher present value (PV) if the discount rate is 5 percent? (Hint: compare the PVs of annuity X ($5,200 per year for 8 years) with annuity B ($7,300 per year for 5 years) b) Which one should you choose between Bank X and Bank Y? 3. Today, Dinero Bank offers you a $60,000, five-year term loan at 7.5 percent annual interest (APR). What will your annual loan payment be? (Hint: Find PMT) 4. You buy an annuity that will pay you $24,000 a year for 25 years. The payments are paid on the first day of each year. What is the value of this annuity today if the discount rate is 8.5 percent? (Hint: annuity due) 5. The Maybe Pay Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $30,000 per year forever. If the required return on this investment is 4.3 percent, how much will you pay for the policy? (Hint: Find PV of perpetuity)
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