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frozen [14]
3 years ago
13

You just inherited some money, and a broker offers to sell you an annuity that pays $5,000 at the end of each year for 20 years.

you could earn 5% on your money in other investments with equal risk. what is the most you should pay for the annuity?
Business
1 answer:
Dennis_Churaev [7]3 years ago
4 0
Hi there
Use the formula of the present value of annuity ordinary
The formula is
S=pmt [(1-(1+r)^(-t))÷r)]
S present value?
PMT payment per year 5000
R interest rate 0.05
T time 20

S=5,000×((1−(1+0.05)^(−20))÷(0.05))
S=62,311....answer

Hope it helps
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Use the formula of the present value of an annuity ordinary which is
Pv=pmt [(1-(1+r)^(-n))÷r]
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