An insurance company has offered your friend the choice of $45,000 per year for 15 years, with the first payment being made toda

Question

4 years ago

12

y, or a lump sum. If a fair return is 7.5%, how large must the lump sum be to leave him as well off financially as with the annuity?

1 answer:

suter [353] · Answer 1 · 2022-01-22T08:57:49+03:00

Answer:

$427,011.92

Explanation:

We use the present value formula i.e to be shown in the attached spreadsheet

Given that,

Future value = $0

Rate of interest = 7.5%

NPER = 15 years

PMT = $45,000

The formula is shown below:

= -PV(Rate;NPER;PMT;FV;type)

And, in type we write the 1 instead of 0

So, after solving this, the present value is $427,011.92