Question
Question 1: You plan to purchase a security that provides an annual dividend of $100 forever. You require a 10% annual return on this investment.
Question 1: You plan to purchase a security that provides an annual dividend of $100 forever. You require a 10% annual return on this investment.
How much are you willing to pay for this security if the first dividend will be paid in one year?
Question 2: Your subscription to Candy Crush Magazine has run out and you can choose to renew it by paying $19.95 now and every year at this regular rate, or by paying for a lifetime subscription that costs $117.95 today. Payments for the regular subscription are made at the beginning of each year. Your annual interest rate is 6% (Hint: Be careful with the +/- signs).
How many subscription payments would you need to make for the lifetime Years subscription to break even compared to the yearly deal?
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