Question

A. calculate the annual cash flows (annuity payments) from a fixed-payment annuity if the present value of the 15-year annuity is $1.6 million and the annuity earns a guaranteed annual return of 10 percent. the payments are to begin at the end of the current year. (do not round intermediate calculations. round your answer to 2 decimal places. (e.g., 32.16))

Answer 1

The first step is to multiply the present value by the interest rate. Since the present value is $1.6 million and the interest rate is 10%, this yields. $160,000. This product is then divided by 1 - (1 + the rate)^-term. So it is divided by 1 - (1.1)^-15. That is, the annual payment = $160,000/[1 - 1.1^-15] = $160,000/.760607951= $210,358.04