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What is the maximum price you will be willing to pay (today) for a 10 year annuity that will generate
$500 per quarter (such payments to be made at the end of each quarter), given you plan to earn 12%,
compounded quarterly?Why are you attempting questions for which you do not have an answer? You should be using a Revision Kit from one of the ACCA approved publishers. They have answers and explanations.
The 3 monthly interest rate = (the 4th root of 1.12) – 1
You then multiply 500 by the annuity factor which you need to calculate using the formula provided with n as the number of quarters (which is 40).
The chance of this being asked in Paper FM is extremely unlikely! If you are not sure about calculating the quarterly interest rate or the annuity factor, then watch the relevant Paper MA lectures because this is revision of Paper MA.
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