# As part of his retirement planning, your uncle has been offered a security that promises to pay...

## Question:

As part of his retirement planning, your uncle has been offered a security that promises to pay $50,000 at the end of each next 20 years. If the interest rate is 6% how much should he be willing to pay for this security?

Value of the security: _ _ _ _?

## Present Value Of Annuity:

The present value of annuity is the discounted present value of a series of payments. The discount rate is the required rate of return on similar risk cash flows and is directly proportional to the risk of the cash flows.

## Answer and Explanation: 1

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* Value of the security: $573,496.06*

The formula for the present value of annuity can be represented as:

{eq}PV= Payment\times...

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Chapter 8 / Lesson 3Learn how to find present value of annuity using the formula and see its derivation. Study its examples and see a difference between Ordinary Annuity and Annuity Due.

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