Question

An insurance annuity offers to pay you $1,000 per quarter for 20 years. If you want to earn a rate of return of 6.5 percent, compounded quarterly, what is the most you are willing to pay as a lump sum today to obtain this annuity

Answer 1

Answer:

the amount that willing to pay is $44,591.11

Explanation:

The computation of the amount that willing to pay is as follows:

The Present Value of an Ordinary Annuity is

= Amount × [{1 - (1 ÷ (1 + rate of interest)^n} ÷ rate of interest]

= $1,000 × [{1 - (1 / (1 + 0.065 ÷ 4)^100} ÷ 0.065 ÷ 4]

= $44,591.11

Hence, the amount that willing to pay is $44,591.11

We simply applied the above formula so that the correct value could come

And, the same is to be considered