Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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3. * A savings plan requires an investor to pay 10 installments, each one of $500, due at the end of every year for 10 years. One year after the last of such installments the bank will start making annual payments to the investor, each one for a fixed amount P, for n years. Assume an effective interest rate of 5% p.a. (a) If n 7 determine the value of P. - (b) If n = ∞, i.e. payments from the bank continue indefinitely, determine the value of P.
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Transcribed Image Text:3. * A savings plan requires an investor to pay 10 installments, each one of $500, due at the end of every year for 10 years. One year after the last of such installments the bank will start making annual payments to the investor, each one for a fixed amount P, for n years. Assume an effective interest rate of 5% p.a. (a) If n 7 determine the value of P. - (b) If n = ∞, i.e. payments from the bank continue indefinitely, determine the value of P.
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Computation of the future value of the investment after 10 years
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Determination of P when n =7
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Determination of P when n = infinity
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