5. Present value of annuities and annuity payments The present value of an annuity is the sum of the discounted value of all future cash flows. You have the opportunity to invest in several annuities. Which of the following 10-year annuities has the greatest present value (PV)? Assume that all annuities earn the same positive interest rate O An annuity that pays $500 at the end of every six months An annuity that pays $1,000 at the beginning of each year O An annuity that pays $500 at the beginning of every six months An annuity that pays $1,000 at the end of each year An ordinary annuity selling at $3,806.77 today promises to make equal payments at the end of each year for the next six years (N). If the annuity's appropriate interest rate (1) remains at 5.00% during this time, the annual annuity payment (PMT) will be You just won the lottery. Congratulations. The jackpot is $10,000,000, paid in six equat annual payments. The first payment on the lottery jackpot will be made today. In present value terms, you really won -assuming annual interest rate of 5.00% 6. Perpetulties Perpetultles are also called annuities with an extended or unlimited life. Based on your understanding of perpetuities, answer the following questions. Which of the following are characteristics of a perpetuity? Check all that apply. A perpetuity continues for a fixed time period. A perpetulty is a series of regularly timed, equal cash flows that is assumed to continue indefinitely into the future. The principal amount of a perpetuity is repaid as a lump-sum amount. In a perpetuity, returns-in the form of a series of identical cash Mows are earned. Your grandfather wants to establish a scholarship in his father's name at a local university and has stipulated that you will administer it. As you ve committed to fund a $15,000 scholarship every year beginning one year from tomorrow, you'll want to set aside the money for the scholarship Immediately. At tomorrow's meeting with your grandfather and the bank's representative, you will need to deposit (rounded to the nearest whole dollar) so that you can fund the scholarship forever, assuming that the account will eam 4.50% per annum every year Oops! The bank representative just reported that he misquoted the available interest rate on the scholarship's account. Your account should earn 7.00%. The amount of your required deposit should be revised to This suggests there is relationship between the interest rate earned on the account and the present value of the perpetuity. 5. Present value of annuities and annuity payments The present value of an annuity is the sum of the discounted value of all future cash flows. You have the opportunity to invest in several annuities. Which of the following 10-year annuities has the greatest present value (PV)? Assume that all annuities earn the same positive interest rate O An annuity that pays $500 at the end of every six months An annuity that pays $1,000 at the beginning of each year O An annuity that pays $500 at the beginning of every six months An annuity that pays $1,000 at the end of each year An ordinary annuity selling at $3,806.77 today promises to make equal payments at the end of each year for the next six years (N). If the annuity's appropriate interest rate (1) remains at 5.00% during this time, the annual annuity payment (PMT) will be You just won the lottery. Congratulations. The jackpot is $10,000,000, paid in six equat annual payments. The first payment on the lottery jackpot will be made today. In present value terms, you really won -assuming annual interest rate of 5.00% 6. Perpetulties Perpetultles are also called annuities with an extended or unlimited life. Based on your understanding of perpetuities, answer the following questions. Which of the following are characteristics of a perpetuity? Check all that apply. A perpetuity continues for a fixed time period. A perpetulty is a series of regularly timed, equal cash flows that is assumed to continue indefinitely into the future. The principal amount of a perpetuity is repaid as a lump-sum amount. In a perpetuity, returns-in the form of a series of identical cash Mows are earned. Your grandfather wants to establish a scholarship in his father's name at a local university and has stipulated that you will administer it. As you ve committed to fund a $15,000 scholarship every year beginning one year from tomorrow, you'll want to set aside the money for the scholarship Immediately. At tomorrow's meeting with your grandfather and the bank's representative, you will need to deposit (rounded to the nearest whole dollar) so that you can fund the scholarship forever, assuming that the account will eam 4.50% per annum every year Oops! The bank representative just reported that he misquoted the available interest rate on the scholarship's account. Your account should earn 7.00%. The amount of your required deposit should be revised to This suggests there is relationship between the interest rate earned on the account and the present value of the perpetuity