Question

Your folks just called and would like some advice from you. An insurance agent just called them and offered them the opportunity to purchase an annuity for ​$26,315.70 that will pay them ​$4,000 per year for 10 years. They​ don't have the slightest idea what return they would be making on their investment of ​$26,315.70. What rate of return would they be​ earning?

The annual rate of return your folks would be earning on their investment is ? %. ​

Answer 1

Let rate of return be x%

At this rate;present value of inflows=26,315.70

26,315.70=4,000/1.0x+4,000/1.0x^2+.................+4,000/1.0x^10

Hence x=rate of return=8.44%(Approx).