hat you have $1,000 in the bank today. If the interest rate is 8%, how many annual, end-of-year payments of $150 can you withdraw?
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I/Y = 8, PMT = 150, PV = -1,000; CPT N = 9.9 years.
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Example:What rate of return will you earn on an annuity that costs $700 today and promises to pay you $100 per year for each of the next 10 years?
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N = 10, PV = 700, PMT = 100; CPTI/Y = 7.07%.
p
e: Calculate the PV of a perpetuity.
Example:Assume a certain preferred stock pays $4.50 per year in annual dividends (and they're expected to continue indefinitely). Given an 8% discount rate, what's the PV of this stock?
PVperpetuity= PMT / I/Y