Question

4. If your company purchases an annuity that will pay $50,000/year for 10 years at a 11% discount rate, what is the value of the annuity on the purchase date if the first annuity payment is made on the date of purchase?

Answer 1

Answer:

The value of the annuity is $326,852.3766.

Step-by-step explanation:

Here is the required formula to find the present value of annuity:

We can find the present value of annuity:

$PV = P + P (\frac{1-(1+r)^{-(n-1)} }{r})$

Here:

            P = $50,000

            n = represents the number of number of periods

            r = 0.11

$PV = 50,000 + 50,5000 (\frac{1-(1+0.11)^{-(10-1)} }{0.11})$

PV = $326,852.3766

The value of the annuity is $326,852.3766 i.e. PV = $326,852.3766.

Keywords: discount rate,  present value of annuity

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