Question
Dear expert: My question is why is the preference of choosing one of the securities at the following question can be based on the PVs
Dear expert:
My question is why is the preference of choosing one of the securities at the following question can be based on the PVs of them? Like why should we choose the security that has the greater PV? Thank you so much.
"Suppose you get for free one of following two securities: (a) an annuity that pays $10,000 at the end of each of the next 6 years; or (b) a perpetuity that pays $10,000 forever, but payments do not begin until 10 years from now (the first cash payment from this security is 11 years from today). Which security would you choose if the annual interest rate is 5%?"
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