# You just paid $361,000 for an annuity that will pay you and your heirs $12,300 a year forever....

## Question:

You just paid $361,000 for an annuity that will pay you and your heirs $12,300 a year forever. What rate of return are you earning on this policy?

## Value of an annuity:

An annuity is a series of equal cash flows that an individual or a firm expects to earn or pay from one period to the next at regular time intervals. A perpetuity is defined as an annuity that is expected to occur forever. The value of an annuity is calculated based on the time value of money concept. According to the time value of money, a dollar today is worth more than a dollar in future and for these calculations the key factors to consider are the interest rate and the time period of the investment.

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Chapter 6 / Lesson 4Learn what perpetuity is in finance. Understand the meaning and definition of perpetuity, its characteristics and how its present value can be found using a formula.

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