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Annual payment of the security investment.

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You are considering an investment in a 40-year security. The security will pay $25 a year at the end of each of the first three years. The security will then pay $30 a year at the end of each of the next 20 years. The nominal interest rate is assumed to be 8 percent, and the current price (present value) of the security is $360.39. Given this information, what is the equal annual payment to be received from Year 24 through Year 40 (i.e., for 17 years)?

a. $35
b. $38
c. $40
d. $45
e. $50

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Solution Summary

This solution is comprised of a detailed calculation to find the annual payment of the security investment.

Solution Preview

First, you need to find the present value at the nominal interest rate of 8% of the $25 paid for the first three years.

$25 x ...

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