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Your uncle is about to retire, and he wants to buy an annuity that will provide him with $80,000...

Question:

Your uncle is about to retire, and he wants to buy an annuity that will provide him with $80,000 of income a year for 20 years, with the first payment coming immediately. The going rate on such annuities is 5.25%.

Required:

How much would it cost him to buy the annuity today?

Annuity:

An annuity can be defined as a series of cash payments that are included at regular intervals for a definite period. If the amount in each annuity is growing then it will be called a growing annuity.

Answer and Explanation: 1

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The calculation for today's annuity cost is shown below.

{eq}Today \ annuity \ cost \ = \ Income \ \times \ \dfrac{1 \ - \ \left ( 1 \ + \ Rate...

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What is Annuity? - Definition & Formula

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Chapter 2 / Lesson 7
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Learn about annuities. Understand what an annuity is, examine the annuity formula and learn how to calculate its future value, and see examples of annuities.


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