1. Paul Bearer may elect to take a lump-sum payment of $25,000 from his insurance policy or an annuity of $3,200 annually as long as he lives. How long must Paul anticipate living for the annuity to be preferable to a lump sum if his opportunity rate is 8%?
a) Approximately 8 years
b) Approximately 10 years
c) Approximately 13 years
d) Approximately 15 years
2. Jack Jones is interested in buying some bonds. The bonds have a 12% coupon rate and mature in 20 years. If the bonds have a par value of $1,000 and are currently selling for $1,160, what is the approximate yield to maturity on the bonds?
The solution explains some questions relating to Time value of money: annuity and yield to maturity of bonds