The Good Life Insurance Co. wants to sell you an annuity which will pay you $730
ID: 2708478 • Letter: T
Question
The Good Life Insurance Co. wants to sell you an annuity which will pay you $730 per quarter for 25 years. You want to earn a minimum rate of return of 5.8 percent. What is the most you are willing to pay as a lump sum today to buy this annuity?
The Good Life Insurance Co. wants to sell you an annuity which will pay you $730 per quarter for 25 years. You want to earn a minimum rate of return of 5.8 percent. What is the most you are willing to pay as a lump sum today to buy this annuity?
$44,072.46 $45,359.57 $38,047.43 $39,628.47 $38,411.83Explanation / Answer
PRESENT VALUE OF ALL THE ANNUITY PAYMENTS = 730*PVIFA(5.8%/4 , 25*4)
= 730*PVIFA(1.45%,100)
=730*52.6189
=$38411.83
AMOUNT WILLING TO PAY = =$38411.83
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