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Appendix B Appendix D You are offered an annuity that will pay $11,000 a year for...

Appendix B

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Appendix D

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You are offered an annuity that will pay $11,000 a year for twelve years (that is, twelve payments), but the payments start after six years have elapsed. If you want to earn 7 percent on your funds, what is the maximum you should pay for this annuity? Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar.

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Answer #1

Value at year 5 = Payments * annuity factor from table

Value at year 5 = 11,000 * 7.943

Value at year 5 = 87,373

Present value = Future value * factor from table

Present value = 87,373 * 0.713

Present value = $62,270

Maximum payment should be $62,270

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