Reference no: EM133121540

Questions -

a) Find how much would you be willing to pay (rounded to the nearest $) for a 25-year annuity due if the payments are $5,500 per year and you want to earn a rate of return equal to 6.5% per year.

b) Estimate how much would you be willing to pay (rounded to the nearest $) for a 20-year ordinary annuity if the payments are $6,500 per year and you want to earn a rate of return equal to 6.5% per year.

c) Using a relevant diagram, describe how would the present value be affected by

i) an increase in the discount rate and

ii) a decrease in the time period until the cash flow is received.