A retirement insurance product pays you $4,000 per year forever. Assume the interest rate will remain unchanged at 9% p.a. What would be the fair price for the product in today's value ?

Round your answer to TWO decimal places (Ignore $ sign and ignore cashflow direction).

Question

A retirement insurance product pays you $4,000 per year forever.  Assume the interest rate will remain unchanged at 9% p.a. What would be the fair price for the product in today's value ?

Round your answer to TWO decimal places (Ignore $ sign and ignore cashflow direction).

BlackTom AI · Accepted Answer

This is a perpetuity problem, where a fixed payment is received forever and the discount rate stays constant.

Step 1: Recognize the present value of a perpetuity formula. When a payment P is received each period indefinitely, the present value (PV) is P / r, where r is the annual interest rate.

Step 2: Identify the given values. The annual payment is 4,000 dollars and the interest rate is 9% per year, i.e., r = 0.09.

Step 3: Apply the formula. PV = 4,000 / 0.09.

Step 4: Compute the division. 4,000 ÷ 0.09 = 44,444.444... dollars.

Step 5: Round to two decimal places as required. 44,444.444... rounds to 44,444.44.

Notes: The instruction to ignore the dollar sign and cashflow direction does not affect the arithmetic here, since we are computing the present value of a steady stream of cash inflows.

A retirement insurance product pays you $4,000 per year forever. Assume the interest rate will remain unchanged at 9% p.a. What would be the fair price for the product in today's value ? Round your answer to TWO decimal places (Ignore $ sign and ignore cashflow direction). 简答题

类似问题

A project generates $100 forever with certainty and cash flows grow at the inflation rate. The nominal interest rate is 4% (real interest rate = 2% and inflation = 2%). Ignore taxes. What is the project’s value?

A bond with unlimited maturity (a perpetuity bond) has a face value of $1,000, and a coupon rate of 5%. If the market interest rate is 10%, what is the current market price of this bond?

You are evaluating a perpetuity that pays $5,000 annually. If the discount rate is 8%, what is the present value of this perpetuity?

The cost of preferred stock is equivalent to the:

A preferred stock pays a dividend of $3.50 in perpetuity. If the return required by shareholders is 11%, what is the price per share for this preferred stock?

National Trucking has paid an annual dividend of $1 per share on its common stock for the past 15 years and is expected to continue paying a dollar per share long into the future. Given this, one share of the firm's stock is:

The Asian Tiger pays a constant annual dividend of $1.18 per share. How much are you willing to pay for one share if you require a 15 percent rate of return?

更多留学生实用工具

智能学习助手

风格化写作助手

论文查重助手

文献引用助手

课堂转译助手

课堂笔记助手

Quiz搜索助手

学校历年真题

智能刷题助手

智能匹配练习

希望你的学习变得更简单