Question

A.) You want to buy an annuity that pays you $4,000 at the end of each year for the next 15 years. If interest rates are 7%, what is a fair price for this annuity?

B.) 60 years ago, the average price of a ticket to a movie theater was $0.14. Today, the average price is $9.60. What is rate of inflation in the price of tickets over that time period?

C.) You purchase rights to a patent with no expiration. It is expected to pay you $62,000 per year forever. If interest rates are 8%, what is the fair price for the patent rights?

D.) After an unfortunate experience with a runaway garbage truck, you were awarded $15,000 in a lawsuit. You’re planning on using the funds to buy a car in 3 years. What rate of return would you need on your investments if the car will cost $32,200?

Answer 1

Ans A) $ 36431.66

Annuity PV Factor (End of Year) =	P [ 1 - ( 1 + r )-n ]
	r
	4000* ( 1 - ((1 / (1 + 7%)^15)))
	7%
	2550.215921
	0.07
	36431.66

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