Suppose you just bought a 25-year annuity of $8,500 per year at the current inte
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Question
Suppose you just bought a 25-year annuity of $8,500 per year at the current interest rate of 9 percent per year.
What if interest rates suddenly rise to 14 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Suppose you just bought a 25-year annuity of $8,500 per year at the current interest rate of 9 percent per year.
What is the value of your annuity today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)Explanation / Answer
Present VAlue of Annuity at currnet rate of 9% = 8500x[1-1/(1+0.09)^25/0.09]
=8500x9.822558 = $83491.93
2) Present value of Annuity if inteest rate drops to 4 % = 8500x[1-1/(1+0.04)^25/0.04] = 8500x15.62208 = $132787.70
3) Present value of Annuity if Interest rate rises to 14% =8500x[1-1/(1+0.14)^25/0.14]= $58419.88
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