Your rich uncle is offering you a gift that you will accept today. Your uncle wants you to choose between one of two investments: I. An annuity that will start paying $600 for 10 years. The annuity's first payment will take place 5 years from today. The annual interest rate is 12%. II. A growing perpetuity that 1 year from now will start paying $200 and is expected to grow at an annual rate of 2% forever. The discount rate is 12%. Calculate the present value of the two investments. Which one would you accept?

Your rich uncle is offering you a gift that you will accept today. Your uncle wants you to choose between one of two investments: I. An annuity that will start paying $600 for 10 years. The annuity's first payment will take place 5 years from today. The annual interest rate is 12%. II. A growing perpetuity that 1 year from now will start paying $200 and is expected to grow at an annual rate of 2% forever. The discount rate is 12%. Calculate the present value of the two investments. Which one would you accept?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 6MC: You want to invest $8,000 at an annual Interest rate of 8% that compounds annually for 12 years....

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