Your financial planner offers you two different investment plans. Plan X is a $20,000 annual perpetuity. Plan

Question:

Your financial planner offers you two different investment plans. Plan X is a $20,000 annual perpetuity. Plan Y is a 10-year, $34,000 annual annuity. Both plans will make their first payment one year from today. At what discount rate would you be indifferent between these two plans?

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...