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ACTSC 231 soln-ch03-_eg3.9-3.16_

ACTSC 231 soln-ch03-_eg3.9-3.16_ - Example 3.9 A lottery...

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Example 3.9 Example 3.9: A lottery winner is offered the choice of a lump sum of $150,000 or an annuity paid annually in arrear for 20 years, increasing at 4% per year, under which the fist payment is $10,000. Assume that the annual effective rate of interest is 7%. Which choice has more value? What if the annual effective rate of interest is 4%? C. Weng ([email protected]) – p. 22/ ?
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Example 3.10 Example 3.10: The first payment under a 10-year annuity is due in 5 years and its amount is $2,000. The subsequent payments increases by $500. Calculate the present value of this annuity at an annual interest rate of 6% effectively. C. Weng ([email protected]) – p. 27/ ?
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Example 3.11: Example 3.11: A loan is repaid by an annuity payable monthly in arrear. In the first year the payments are $100 each month. Each subsequent year payments increase by $20. The loan is repaid after 5 years. The interest rate is 0.5% per month effectively. Find the amount of the loan.
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