The Good Life Insurance Co. wants to sell you an annuity which will pay you $670 per quarter for 25 years. You want to earn a minimum rate of return of 5.2 percent. What is the most you are willing to pay as a lump sum today to buy this annuity?
Annuity refers to the series of an equal sum of payment or deposit at an interval period of time. Examples of annuity is the monthly home mortgage, insurance premiums, and monthly pension.
Answer and Explanation: 1
The present value of the annuity at the minimum rate of return of 5.2% should be the amount that the investor should pay for the investment. The...
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fromChapter 21 / Lesson 15
An annuity is a type of savings account that pays back the investor in the future. Learn the formula used to calculate an annuity's value, and understand the importance of labeling specific numbers to calculate an output over time.