An insurance company offers you an end of year annuity of $48,000 per year for the next 20 years. They claim your return on the annuity is 9 percent. What should you be willing to pay today for this annuity?

A) $429,600
B) $438,144
C) $408,672
D) None of the above

Question

Prabhu Janagal · Accepted Answer

Final Answer : B, Explanation :  We can use the formula for the present value of an annuity to calculate what we should be willing to pay today:PV = C * [(1 - (1 + r)^-n) / r]Where PV is the present value, C is the annual payment, r is the interest rate, and n is the number of years.In this case, we have:PV = $48,000 * [(1 - (1 + 0.09)^-20) / 0.09]PV = $438,144So we should be willing to pay $438,144 today for this annuity. The closest answer choice is B.

An insurance company offers you an end of year annuity of $48,000 per year for the next 20 years. They claim your return on the annuity is 9 percent. What should you be willing to pay today for this annuity?

A) $429,600
B) $438,144
C) $408,672
D) None of the above

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An insurance company offers you an end of year annuity of $48,000 per year for the next 20 years. They claim your return on the annuity is 9 percent. What should you be willing to pay today for this annuity?A) $429,600B) $438,144C) $408,672D) None of the above

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Learning Objectives

Learning Objectives

Related questions

An insurance company offers you an end of year annuity of $48,000 per year for the next 20 years. They claim your return on the annuity is 9 percent. What should you be willing to pay today for this annuity?

A) $429,600
B) $438,144
C) $408,672
D) None of the above