Question

• Suppose you are considering purchasing a financial asset that promises to pay $1000 per year for five years, with the first payment one year from now. The required rate of return is 12% per year. How much should you pay for this asset? • You are retiring today and must choose to take your retirement benefit either as a lump sum or as an annuity. Your company's benefits officer presents you with two alternatives: an immediate lump sum of $2million or an annuity with 20 payments of $200,000 a year with the first payment starting today. The interest rate at your bank is 7% per annum . Which option has the greater present value? (ignore tax differences between the two options) • You want to endow a fund which pays out a scholarship of GHS1000 every year in perpetuity. The first scholarship will be paid out in five years' time. Assuming an interest rate of 7%, how much do you need to pay into the fund?

          • Suppose you are considering purchasing a financial asset that promises to pay $1000 per year for five years, with the first payment one year from now. The required rate of return is 12% per year. How much should you pay for this asset?
• You are retiring today and must choose to take your retirement benefit either as a lump sum or as an annuity. Your company's benefits officer presents you with two alternatives: an immediate lump sum of $2million or an annuity with 20 payments of $200,000 a year with the first payment starting today. The interest rate at your bank is 7% per annum . Which option has the greater present value? (ignore tax differences between the two options)
• You want to endow a fund which pays out a scholarship of GHS1000 every year in perpetuity. The first scholarship will be paid out in five years' time. Assuming an interest rate of 7%, how much do you need to pay into the fund?

• Suppose you are considering purchasing a financial asset that promises to pay 1000 per year for five years, with the first payment one year from now. The required rate of return is 12% per year. How much should you pay for this asset?
• You are retiring today and must choose to take your retirement benefit either as a lump sum or as an annuity. Your company's benefits officer presents you with two alternatives: an immediate lump sum of2million or an annuity with 20 payments of 200,000 a year with the first payment starting today. The interest rate at your bank is 7% per annum . Which option has the greater present value? (ignore tax differences between the two options)
• You want to endow a fund which pays out a scholarship of GHS1000 every year in perpetuity. The first scholarship will be paid out in five years' time. Assuming an interest rate of 7%, how much do you need to pay into the fund?

Added by Celia J.

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