Question: 1. What would you calculate the price of an annuity paying £12,000 per annum (starting in 12 months' time) to be if the market rate of interest is
(a) 5%,
(b) 10%,
(c) 15%,
(d) 20%?
2. A government bond guarantees an annual payment of £140 in perpetuity; what will it be priced at, given a market rate of interest of 4%?