excans:7c9d9fb6d7: Difference between revisions
From Stochiki
(Created page with "Use growing annuity formula assuming that the payments are made at the begining of each year and you pay in full for the year that you die (unfortunately). The value if you have an expected life of T years is: <math display = "block">\begin{aligned} P V & = 750+ 750 *\left(\frac{1.05}{1.12}\right)+\cdots+ 750 *\left(\frac{1.05}{1.12}\right)^T \\ & = 750+ 750\left[\frac{1}{0.12-0.05}-\frac{1}{0.12-0.05} \times\left(\frac{1.05}{1.12}\right)^T\right]\end{aligned} </math>...") |
mNo edit summary |
||
| Line 1: | Line 1: | ||
'''Solution: A''' | |||
Use growing annuity formula assuming that the payments are made at the begining of each year and you pay in full for the year that you die (unfortunately). The value if you have an expected life of T years is: | Use growing annuity formula assuming that the payments are made at the begining of each year and you pay in full for the year that you die (unfortunately). The value if you have an expected life of T years is: | ||
Latest revision as of 19:01, 4 December 2023
Solution: A
Use growing annuity formula assuming that the payments are made at the begining of each year and you pay in full for the year that you die (unfortunately). The value if you have an expected life of T years is:
[[math]]\begin{aligned} P V & = 750+ 750 *\left(\frac{1.05}{1.12}\right)+\cdots+ 750 *\left(\frac{1.05}{1.12}\right)^T \\ & = 750+ 750\left[\frac{1}{0.12-0.05}-\frac{1}{0.12-0.05} \times\left(\frac{1.05}{1.12}\right)^T\right]\end{aligned}
[[/math]]
Solve for T . The breakeven point is T >= 16
References
Lo, Andrew W.; Wang, Jiang. "MIT Sloan Finance Problems and Solutions Collection Finance Theory I" (PDF). alo.mit.edu. Retrieved November 30, 2023.