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monitta
3 years ago
14

Two annuities have equal present values and an applicable discount rate of 7.25 percent. One annuity pays $2,500 on the first da

y of each year for 15 years. How much does the second annuity pay each year for 15 years if it pays at the end of each year
Business
1 answer:
nignag [31]3 years ago
5 0

Answer:

$2681.30 approx.

Explanation:

The first annuity is case of annuity due

For the first annuity, $2500 + 2500 × cumulative present value factor at 7.25% for 14 years

= $2500 + 8.6158 × 2500

= $24040 approx

The second annuity is the case of deferred annuity wherein payments are made at the end of the year.

Payment amount of second annuity = Present Value of first annuity ÷ cumulative present value annuity factor at 7.25% for 15 years

This will be equal to 24,040/8.9658 = $2681.30 approx.

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