Question
A local bank advertises the following deal: Pay us $100 at the end of each year for 12 years and then we will pay you
A local bank advertises the following deal: Pay us $100 at the end of each year for 12 years and then we will pay you (or your beneficiaries) $100 at the end of each year forever. |
a. | Calculate the present value of your payments to the bank if the interest rate available on other deposits is 5.00%. (Do not round intermediate calculations. Round your answer to 2 decimal places.) |
Present value | $ |
b. | What is the present value of a $100 perpetuity deferred for 12 years if the interest rate available on other deposits is 5.00%. (Do not round intermediate calculations. Round your answer to 2 decimal places.) |
Present value | $ |
c. | Is this a good deal? | ||||
|
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started