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Assuming that the annuity will end with your friends life

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A. A friend who owns a perpetuity that promises to pay $10,500 at the end of each year, forever, comes to you and offers to sell you all of the payments to be recieved after the 20th year for a price of $10,500. At an interest rate of 10 percent, should you pay the $10,500 today to receive payment numbers 21 and onwards? What does this suggest to you about the value of perpetual payments?

B. Now answer part (A) assuming that the annuity will end with your friend's life, he is currently 45 years old. Show your calculations.

 

Reference no: EM13262548

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