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Your uncle is about to retire, and he wants to buy an annuity that will provide him with $75,000...

Question:

Your uncle is about to retire, and he wants to buy an annuity that will provide him with $75,000 of income a year for 20 years, with the first payment coming immediately. The going rate on such annuities is 5.25%. How much would it cost him to buy the annuity today?

Present Value of Annuity:

An annuity is a series of fixed payments paid or received either at the end or at the beginning of every period so that a huge upfront payment or receipt can be converted into a series of relatively small payments or receipts. An annuity which continues for forever is called as a perpetuity.

Answer and Explanation: 1

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The calculated present value of the annuity is $915,166.70.

The formula for the present value of the annuity is given by:

{eq}P\, = \dfrac{1\, -\,...

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How to Calculate the Present Value of an Annuity

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Chapter 8 / Lesson 3
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Learn 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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