1 answer

6) How much are you willing to sell a goose that lays golden eggs which can...

Question:

6) How much are you willing to sell a goose that lays golden eggs which can sell for $6,000 every year (at the end of the year) forever, assuming your opportunity cost of money is 5%? Assume gold price to be constant.

7) You are 35 today. You are looking into buying a retirement annuity contract which will pay you a constant $10,000 per year, at the start of each year, for 15 years when you retire at 67. If the insurer marketing this contract has a cost of capital of 12%, how much will the fair market value of the contract be today?


Answers

Ans 6) $ 120,000

Present Value = Annual Income / Opportunity cost of money

                      = 6000 / 5%

                      = $ 120,000

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