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svet-max [94.6K]
3 years ago
15

Fidelity Mutual (an insurance company) has offered you a single premium annuity that will pay you $12,000 at the end of each yea

r for the next 15 years. If you must pay $109,296 today for this annuity, what is your expected rate of return?
Business
1 answer:
Travka [436]3 years ago
8 0
Given:
Initial Investment = 109,296
annual return = 12,000 for 15 years.

Usually the expected rate of return uses rates in percentage form. ERR is calculated by taking the average of the probability distribution of all possible <span>returns.
</span>However, based on the given figures, I think the best formula for this would be the accounting rate of return.

ARR = Average Accounting Profit / Average Investment
ARR = 12,000 / 109,296
ARR = 0.10979 
ARR = 0.10979 100% = 10.979 or 10.98%

The expected rate of return is 10.98%


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