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Problem:

What is the relationship between the value of an annuity and the level of interst rates? Suppose you just bought a 10-year annuity of $10,000 per year at the current interest rate of 3 percent per year.

Required:

Question 1: What is the present value of your investment?

Question 2: What is the present value of your investment if interst rates suddenly increased to 5 percent?

Question 3: Why does a change in interst rates cause the value of your annuity to change?

Note: Provide support for your rationale.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91170304

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