Question
An annuity makes monthly payments, with the first payment of $100,000 coming today and subsequent payments growing at a rate of 0.8% per month and
An annuity makes monthly payments, with the first payment of $100,000 coming today and subsequent payments growing at a rate of 0.8% per month and continuing for 30 years.What is the present value of this annuity if the annualized rate of return that you can earn from other investments is 12% for each of the next 10 years, 15% for each of the ten years after that, and 17% for the ten years after that?
A step-by-step calculation would be appreciated.
1) Would you convert the 0.8%/month growth to a yearly growth by compounding it 12 times in order to solve for g?
2) Once you solve for the first 10 years, would you discount the amount back 9 years in order to solve for the next 10 years? If so, do you use the discount rate for the first 10 or the subsequent 10 years to solve for it?
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