Question 4

1. The NewLife Insurance Company is offering an insurance policy that will give you and your offspring $18,000 per year forever. If you require a 6% return on investment the how much would you have to pay for the policy?
2. If in part a. above the cost of the policy was 360,000 what would you expect the interest rate to be for this to be a fair deal?
3. You're considering to get a loan. Bank A charges 15% annually and Bank B charges 15.25% accrued semi-annually. Which bank has a lower effective rate of interest?
4. Payments are made on a 15-year annuity of $1500 at the end of each month. Calculate the present value if the interest rate is 11% compounded monthly for the first 7 years and 7 percent compounded monthly thereafter.

Question 5: MyFriends is an internet company well enough established for the Board of Directors to approve an annual dividend of $2.00 per share.

Given the companies previous performance investors anticipate the Board to increase the dividend at a rate of 5% per year.

The current interest rate is 10%.

If the current market share price is $40 on the stock exchange, would this be a good buy? Why?