1) Insurance company is trying to sell you retirement annuity. Annuity will give you 20 payments with the 1st payment in 12 years when you retire. Insurance company is asking you to pay $50,000 today. If this is a reasonable deal, what should the payment amount be (to the dollar) if interest rate is 8%?
2) You have 1999 Nissan which is expected to run for another 3 years, but you are considering buying the new Hyundai before Nissan wears out. You’ll contribute Nissan to Goodwill when you purchase the new car. Annual maintenance cost is= $1700 per year for Nissan and $200 for Hyundai. Price of your favourite Hyundai model is= $18000 and it is expected to run 15 years. Your opportunity cost of capital is 8%. Ignore taxes.
a) Compute EAC for both Nissan and Hyundai.
b) When must you buy new Hyundai?