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Compare value vs price to make a decision

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Reference no: EM132726085

You own two annuity investments and have a discount rate of 12% p.a.

Annuity 1 - This annuity has 6 semi-annual payments in advance, growing at 2% every 6 months. The first payment is $500.

Annuity 2 - This annuity pays $200 every quarter for 5 years.

You are offered $3,000 to sell any one of the investments.

Which investment will you sell (if any) and calculate the gain?

(Hint: Calculate the PV of each annuity and compare value vs price to make a decision. Remember you are looking to SELL here.)

Reference no: EM132726085

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