1. You are willing to pay $15,625 to purchase a perpetuity that will pay you and your heirs $1,250 each year, forever. If your required rate of return does not change, how much would you be willing to pay if this were a 20-year annual payment, ordinary annuity instead of perpetuity?
2. Find the present value of a $100, 5-year ordinary annuity plus a final payment of $1,000 at a discount rate of 12%.
3. Assume that you are paying $927.90 to buy a $100, 5-year ordinary annuity plus a final payment of $1,000. Compute the rate of return on the investment.