Unformatted text preview: ., $1,000,000 over 25 years) or as a single
amount of $500,000 paid immediately.
a. If you expect to be able to earn 5% annually on your investments over the
next 25 years, ignoring taxes and other considerations, which alternative
should you take? Why?
b. Would your decision in part a change if you could earn 7% rather than 5%
on your investments over the next 25 years? Why?
c. On a strictly economic basis, at approximately what earnings rate would you
be indifferent between the two plans? LG3 4–23 Perpetuities Consider the data in the following table. Perpetuity Annual amount Discount rate A $ 20,000 B 100,000 10 8% C 3,000 6 D 60,000 5 Determine, for each of the perpetuities:
a. The appropriate present value interest factor.
b. The present value. LG3 4–24 Creating an endowment Upon completion of her introductory finance
course, Marla Lee was so pleased with the amount of useful and interesting
knowledge she gained that she convinced her parents, who were wealthy
alums of the university...
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