1. A Life Insurance company offers a perpetuity that pays annual payments of $20,000. This contract sells for $320,000 today. What is the interest rate?
2. Noly Corp. issued preferred stock at $1,000 with a 5.8% dividend. The current rate of return investors require is 6.0%. What is the maximum price investors would be willing to buy for the preferred stock?
3. Crinkle Inc. is selling a product that it expects will generate cash flows of $715,000 every year. The company’s required rate of return is 12.8%. What is the value of this product to the company?
4. For her retirement, Rebecca plans to invest $8,000 each year for 15 years. If she earns 7% per year and invests monthly starting now, how much will she have when she retires?