Suppose you bought a 25-year annuity of $8,500 per year at the current discount rate of 9 percent per year. a. What is the value of your annuity today

The annuity is worth $83,419.93.-

Explanation:

Giving the following information:

Suppose you bought a 25-year annuity of $8,500 per year at the current discount rate of 9 percent per year.

First, we need to calculate future value. We will use the following formula:

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

A = cash flow

FV = {8,500*[ (1.09^25) - 1]} / 0.09

FV = $719,957.62

Now, the present value:

PV=FV / (1+i) ^n

PV = 719,957.62 / (1.09^25)

PV = $83,419.93