Assume that you are offered an annuity that pays $100 at the end of each year for 10 years. You could earn 8% on your money in other investments with equal risk. What is the most you should pay for the annuity

The annuity is worth $671.01

Explanation:

Giving the following information:

Cash flow = $100

The number of years = 10 years.

Interest rate = 8%

To calculate the value of the annuity, we need to calculate the present value.

First, we need to calculate the final value:

FV = {A*[ (1+i) ^n-1]}/i

A = annual cash

FV = {100*[ (1.08^10) - 1]} / 0.08

FV = $1,448.66

Now, the present value:

PV=FV / (1+i) ^n

PV = 1,448.66 / (1.08^10)

PV = $671.01