The answer is <span>b. 4.38%
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An annuity that is worth $13,800,000.00 today, that lasts 20 time periods and pays a constant $1,050,000.00 over each time period has an interest rate of 4.38%.
Explanation:
With a 4.38% interest rate, the present value of the payments is lower than the future value. Thus, the $1,050,000.00 you will be receiving in orderly payments is worth less today than it will be tomorrow. This condition is consistent with the time value of money, which states that with time money appreciates rather than depreciates. In other words, if you invest the $1,050,000.00 payment, its value over 20 time periods will increase.
