Ask Question
19 June, 02:45

You are offered an annuity that will pay you $200,000 per year, at the end of the year, for 25 years. The first payment will arrive one year from now. The last payment will arrive 25 years from now. Suppose your annual discount rate is i=16.25%. How much are you willing to pay for this annuity? (hint: this is the same as the present value of an annuity.)

+4
Answers (1)
  1. 19 June, 05:37
    0
    I am willing to pay $1,202,235.89 for this annuity.

    Explanation:

    Calculate Present value of future cash flow to calculate the price for the annuity should be paid now.

    Monthly receipt = PMT = $200,000

    Number of years = n = 25 years

    Rate of return = r = 16.25% = 0.1625

    PV = PMT x [ 1 - (1 + r) ^-n) ] / r

    PV = $200,000 x [ 1 - (1 + 0.1625) ^-25) ] / 0.1625

    PV = $200,000 x [ 1 - (1.1625) ^-25) ] / 0.1625

    PV = $1,202,235.89
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “You are offered an annuity that will pay you $200,000 per year, at the end of the year, for 25 years. The first payment will arrive one ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers