Question
To insure you, Assurances Nochance Ltd offers the following plan: you will pay 20 annual payments of $8,000 starting one year from today. Then, in
To insure you, Assurances Nochance Ltd offers the following plan: you will pay 20 annual payments of $8,000 starting one year from today. Then, in year 21, you or your heirs will receive a pension for the following 15 years. The discount rate used by the company to calculate your pension is 6%.
(a) What is the size of your annual pension?
(b) If you could take a one‐time lump sum payment 25 years from today instead of the pension, how?
high would the equivalent lump sum payment have to be?
Step by Step Solution
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There are 3 Steps involved in it
Step: 1
a To calculate the size of your annual pension we need to first calculate the present value of your payments We can use the present value formula for ...
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Corporate Finance
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Gordon Ro
7th Canadian Edition
007090653X, 978-0070906532, 978-0071339575
