6) How much are you willing to sell a goose that lays golden eggs which can...
6) How much are you willing to sell a goose that lays golden eggs which can sell for $6,000 every year (at the end of the year) forever, assuming your opportunity cost of money is 5%? Assume gold price to be constant.
7) You are 35 today. You are looking into buying a retirement annuity contract which will pay you a constant $10,000 per year, at the start of each year, for 15 years when you retire at 67. If the insurer marketing this contract has a cost of capital of 12%, how much will the fair market value of the contract be today?
Homework Answers
Ans 6) $ 120,000
Present Value = Annual Income / Opportunity cost of money
= 6000 / 5%
= $ 120,000
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