Question

Your insurance agent is trying to sell you an annuity that costs $70,000 today. By buying this annuity, your agent promises that you will receive payments of $380 per month for 25 years. What is the rate of return expressed as an APR on this investment

Answer 1

Answer:

APR = 0.356%

Explanation:

PV = Present Value of the annuity = $70,000

PMT = Annuity payment at the end of each period = $380 per month

N = Number of periods = 25 years x 12 months = 300 Months

FV = Future Value of the annuity =  0

I =  APR or the interest rate = ?? We have to calculate this.

We shall use a financial calculator to compute the value of I.

https://www.calculator.net/finance-calculator.html?ctype=returnrate&ctargetamountv=0&cyearsv=300&cstartingprinciplev=-70000&cinterestratev=6&ccontributeamountv=380&ciadditionat1=end&printit=0&x=93&y=13

APR = 0.356%