Question

Your aunt is about to retire, and she wants to sell some of her stock and buy an annuity that will provide her with income of $50,000 per year for 30 years, beginning a year from today. The going rate on such annuities is 7.25%. How much would it cost her to buy such an annuity today?a. $574,924b. $605,183c. $635,442d. $667,214e. $700,575

Answer 1

Answer:

The answer is 605,183.

Explanation:

The aunt has to calculate how much money will cost an annuity of 50,000 for 30 years, at one rate of 7.25%, and she wants to star at the end od the first year. The formula we need is $C * (1-(1+i)^{-t} )/i$, where C is the annuity, i is the rate, and t is the amount of years of the annuity., So, the calculation is $50,000 * (1-(1,0725)^{-30} )/0,0725 = 50,000 * 12,1036627 = 605,183$.