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A local bank advertises the following deal: Pay us $100 at the end of each year for 10 years and then we will pay you (or your beneficiaries) $100 at the end of each year forever.
a. Calculate the present value of your payments to the bank if the interest rate available on other deposits is 8.75%. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Present value $
b. What is the present value of a $100 perpetuity deferred for 10 years if the interest rate available on other deposits is 8.75%. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
c. Is this a good deal?
No
Yes
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