Lloyd Blankfein would like to supplement his low pension paid by his employer Go

Question

Lloyd Blankfein would like to supplement his low pension paid by his employer Goldman Sacks. His personal banker Jamie Dimon told him that he could pay $1,000 every month for ten years (making 10 × 12 = 120 payments at the end of each month until her retirement) and then he will start receiving $1,000 forever. He will receive the first $1,000 in ten years and one month, i.e. one month after he made his last payment; after he passes away his heirs (and their heirs etc.) will continue to receive the monthly

payments forever. What is the effective annual rate (EAR) the bank used to calculate the terms of this deal?

show all work please

step by step

do not use excel please

explain the question with words not just numbers

thanks in advance

Explanation / Answer

I

Calculation of Effective Annual rate :

at effective annual rate present value

Hence present value should be = $1000

Now we need to calculate a rate at which present value 0f = 49900

Present value = Down payment +present value of monthly payament (Using PV of annuity due formula)

= 1000+ 1000 + 1000* Present value annuity factor

= 2000 + 1000* PVAF

Hence ,

2000 + 1500* PVAF

Note:I dont have annuity table so please sustittue it and caleculate

thanks in advance

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