You are thinking of building a new machine that will save you
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You are thinking of building a new machine that will save you

(i) You are thinking of building a new machine that will save you $4000 in the first year. The machine will then begin to wear out so that the savings decline at a rate of 4% per year forever. What is the present value of the savings if the interest rate is 10% per year?

(ii) A rich aunt has promised you $2000 one year from today. In addition, each year after that, she has promised you a payment (on the anniversary of the last payment) that is 7% larger than the last payment. She will continue to show this generosity for 20 years, giving a total of 20 payments. If the interest rate is 7%, what is her promise worth today?

Hint
Accounts & FinanceThe savings rate is a dimension of the amount of money, stated as a percentage or ratio, that a person deducts from their throwaway individual income to set aside for retirement. The most likely cause of the decline is the increase in predictable income after withdrawal that has reduced the amount at which they save....

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