1. Annuity A makes annual payments of R1200 for each of the next 10 years, while annuity B makes annual payments of R750 per year forever. At what interest rate would you be indifferent between the two? At interest rates above this break-even rate, which annuity would you choose? How about at interest rates below the break-even rate?
2. You want to deposit sufficient money today into a savings account so that you will have R5,000 in the account three fromtoday. Explain why you could deposit less money today if you could earn 3.5 percent interest rather than 3 percent interest.