Question
Your broker has approached you with an interesting investment opportunity called Mixed Cash Flow In, Annuity Out. For the Mixed Cash Flow In you will
Your broker has approached you with an interesting investment opportunity called Mixed Cash Flow In, Annuity Out. For the Mixed Cash Flow In you will make payments each year for the next three years in the following amounts: $11,000, then $10,000, then $9,000. The first payment will be one year from today. For the Annuity Out you will receive payments in the form of a 4-year annual ordinary annuity. The payment amount is $35,000. The Annuity Out starts 30 years from now, which means the first payment of the Annuity Out will be at Time 31. If the interest rate is expected to remain a constant 5%, annually compounded, should you invest?
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