Assume that you own an annuity that will pay you $12,000 per year for 12 years, with the first payment being made today. You need money today to start a new business, and your uncle (who does not know finance but love you very much) offers to give you $120,000 for the annuity.
If you sell it to your uncle, what rate of return would your uncle earn on his investment?
Suppose your uncle is earning 6% annually on his $120,000. Is this deal fair to your uncle? Explain
You want to be fair with your uncle and his offer, what would be a fair value for the annuity given that your uncle is making 6% annually on his $120,000?