(a) Present value : County ranch insurance company wants to offer a guaranteed annuity in units of $800, payable at the end of each year for 10 years. The company has a strong investment record and can consistently earn 11% on its investment after taxes. If the company wants to make 1% on this contract, what price should it set on it? Use 10% as the discount rate. Assume, it is an ordinary annuity and the price is the same thing as present value.
(b) A smooth talking used car salesman who smiles considerably is offering you a great deal on a pre-owned car. He says for only 7 annual payments of $2, 300, this beautiful honda civic can be yours. If you can borrow money at 9%, what is the price of this car? Assume payments are made at the end of each year.
(c) Payments: Sam Hinds, a local dentist is going to remodel the dental reception area and added two new workstations. He has contact A-Dec and the new equipment and cabinetry will cost $18, 000. A-Dec will finance the equipment purchase at 7.5% for 6 years. What will Hinds have to pay in annual payments for this equipment?