Question
A financial planner working for R. Allen Stanford Financial Group offers you two different investment plans. Plan A is a $20,000 annual perpetuity beginning a
A financial planner working for R. Allen Stanford Financial Group offers you two different investment plans. Plan A is a $20,000 annual perpetuity beginning a year from today. That is, $20,000 will be payed every year forever from next year. Plan B is a perpetual(growing) annuity with the first income of $12,000 a year from today. Future income from Plan B will increase by 3% per year forever. If you are indifferent between these two annuities, what is the required rate of return from both annuities? What is the present value of both plans at this rate of return? Be specific.
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