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(a) Present value : County ranch insurance company wants to offer a guaranteed annuity in units of $800, payable at the end of each year for 10 years....

(a) Present value : County ranch insurance company wants to offer a guaranteed annuity in units of $800, payable at the end of each year for 10 years. The company has a strong investment record and can consistently earn 11% on its investment after taxes. If the company wants to make 1% on this contract, what price should it set on it? Use 10% as the discount rate. Assume, it is an ordinary annuity and the price is the same thing as present value.


(b) A smooth talking used car salesman who smiles considerably is offering you a great deal on a pre-owned car. He says for only 7 annual payments of $2, 300, this beautiful honda civic can be yours. If you can borrow money at 9%, what is the price of this car? Assume payments are made at the end of each year.


(c) Payments: Sam Hinds, a local dentist is going to remodel the dental reception area and added two new workstations. He has contact A-Dec and the new equipment and cabinetry will cost $18, 000. A-Dec will finance the equipment purchase at 7.5% for 6 years. What will Hinds have to pay in annual payments for this equipment?

Top Answer

a. If 10% is the discount rate, and the company wants to make 1%, the required return will be 11% Price/PV = Annuity*Present... View the full answer

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Other Answers

Part A: Given the following cash inflow at the end of each year, what is the future value of this cash flow at 6%, 9%, and... View the full answer

1 comment
  • I dont understand your computation, please. The figures are completely at variance with the questions asked.
    • Alanhurvitz
    • Jul 20, 2016 at 11:21am

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