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Joe can purchase one of two annuities: Annuity 1: A 10-year decreasing annuity-immediate, with annual payments of 10, 9,8, , 1. Annuity 2: A perpetuity-immediate
Joe can purchase one of two annuities: Annuity 1: A 10-year decreasing annuity-immediate, with annual payments of 10, 9,8, , 1. Annuity 2: A perpetuity-immediate with annual payments. The perpetuity pays 1 in year 1, 2 in year 2, 3 in year 3,..., and 11 in year 11. After year 11, the payments remain constant at 11.
At an annual effective interest rate of i, the present value of Annuity 2 is twice the present value of Annuity 1. Calculate the value of Annuity 1.
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