Question
Maya, Naomi, and Oksana each own a level pay annuity. All three annuities are monthly pay annuities immediate and have the same present value but
Maya, Naomi, and Oksana each own a level pay annuity. All three annuities are monthly pay annuities immediate and have the same present value but they have different terms.
a) Mayas annuity lasts 5 years and pays $750 per month but it doesnt start for 5 years. The interest rate is i(4) = 5%. What is the present value of Mayas annuity?
b) Naomis annuity also lasts 5 years but it starts right away. How much are her monthly payments?
c) Oksanas annuity starts today and lasts 10 years. Her payments are one half of Mayas payments, but her annuity uses a different interest rate. Find the effective monthly rate for her annuity (so that it has the same PV as Mayas and Naomis).
d) Convert the effective monthly rate from c) to a nominal annual rate compounded quarterly.
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