The nominal interest rate convertible monthly is (12) = 9% for both part (a) and part (b).

a) An annuity-immediate consists of 60 monthly payments. Compute the present value of this annuity if the first payment is $400,000 and each subsequent payment is $5,000 less than the previous payment.

b) A perpetuity-due with monthly payments has payments of $400 at t = 0, 60, 120, 180,... (where t is measured in monthly periods) and the payments at t = 1 through t = 59, t =61 through t = 119, t = 121 through t = 179, ... are each $5 less than the previous payment. A timeline diagram for this perpetuity is shown below: Compute the present value of this perpetuity. For full credit, you must use your answer from part (a) to compute this present value.