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 $53,000 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

Present Value = $641,494.12

Explanation:

Giving the following information:

Cash flow = $53,000 per year

Number of years = 30 years

Interest rate = 7.25%

First, we need to calculate the final value of the annuity:

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

A = annual flow

FV = {53,000*[ (1.0725^30) - 1]} / 0.0725

FV = $5,237,351.32

Now, we can determine the present value:

PV = FV / (1+i) ^n

PV = 5,237,351.32 / (1.0725^30)

PV = $641,494.12