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Perpetual stream of annual payments

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Question 1. The Tip Top Insurance Company will pay an investor $15,000 at the end of each year for 20 years, in exchange for $190,000 paid to Tip Top at the beginning of the first year. What annual interest rate is Tip Top paying on this annuity? [HINT: Calculate the present value of the annuity by each of the given interest rates.]

Question 2. Today, you are purchasing a 20-year, 6% p.a. annuity at a cost of $120,000. The annuity will pay equal annual payments starting one year from today. To nearer cent, what is the amount of each annual payment?

Question 3. Bigger Burgers Store Ltd is planning a major expansion in 4 years from today. In preparation for this the company is setting aside $35,000 at the beginning of each quarter, starting today, for the next 4 years (that is, 16 payments in total). If the company can earn 6.25% per annum, compounded quarterly, on its savings, how much money will the company have in four years?

Question 4. Given an interest rate of 5.85% per annum, compounded yearly, what is the value at year t = 8 of a perpetual stream of annual payments of $2,500 which begin at t = 25?

Reference no: EM133227530

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