Goliath Banking Corporation (GBC) offers an "Income Investment Product" (IIP) for customers. The details for this product is as follows: Customers pay $908.08904319366 to buy an IIP. The IIP will pay out $44 at the end of each year for 9 years The IIP will pay out a further single payment of $1,000 after 9 years There are no further payments after this single payment at time 9. (b) If instead GBC were to offer investors an effective annual return of 4.9376%, what price should they charge for this product? Give your answer in dollars, to the nearest cent. (c) Suppose that GBC decides to delay the final single payment of $1,000 by one year (assume this is permitted in the fine print of the IIP). Assuming no other changes are made, which ONE of the following statements is true for investors that have already purchased the IIP? a. The investors will now receive a lower return on their investment since their payments have been delayed. b. Investors will pay a lower price for this delayed final payment. c. Since the $1,000 payment is relatively far into the future, the delay will not have a significant impact in present value terms. d. GBC would have to pay a larger final amount to compensate investors for the delay.
Goliath Banking Corporation (GBC) offers an "Income Investment Product" (IIP) for customers. The details for this product is as follows:
Customers pay $908.08904319366 to buy an IIP.
The IIP will pay out $44 at the end of each year for 9 years
The IIP will pay out a further single payment of $1,000 after 9 years
There are no further payments after this single payment at time 9.
(b) If instead GBC were to offer investors an effective annual return of 4.9376%, what price should they charge for this product? Give your answer in dollars, to the nearest cent.
(c) Suppose that GBC decides to delay the final single payment of $1,000 by one year (assume this is permitted in the fine print of the IIP). Assuming no other changes are made, which ONE of the following statements is true for investors that have already purchased the IIP?
a.
The investors will now receive a lower
b.
Investors will pay a lower price for this delayed final payment.
c.
Since the $1,000 payment is relatively far into the future, the delay will not have a significant impact in present value terms.
d.
GBC would have to pay a larger final amount to compensate investors for the delay.
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