Question

Your father is considering purchasing an annuity that pays $5,000 at the beginning of each year for 5 years. he could earn 4.5% on his money in other investments with equal risk. what is the most he should pay for the annuity?

Answer 1

22,938 is what he should pay for the annuity.
 Given;
Pv = 5000
r = 4.5
n = 5
Formula of Annuity payment is; P = r(PV) / 1 - (1 + r)^-n
= 5000 * 0.045 / 1 - (1+0.045)^-5
= 22,938
Just follow the formula of the annuity payment and you can get the final answer you are looking for. The answer in this question is $22,938