Your aunt is about to retire, and she wants to sell some of her stock and...

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Your aunt is about to retire, and she wants to sell some of her stock and...

Your aunt is about to retire, and she wants to sell some of her stock and buy an annuity that will provide her with income of $53,000 per year for 30 years, beginning a year from today. The going rate on such annuities is 7.25%. How much would it cost her to buy such an annuity today?

a. $519,610.24 b. $493,950.47 c. $647,909.06 d. $641,494.12 e. $756,963.06

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Answer 1

Answer #1

Income per year = P = $53000

Number of years = n = 30

Interest Rate = r = 7.25%

Hence, Present Value of this annuity = P/(1+r) + P/(1+r)² +....+ P/(1+r)ⁿ

= P[1- (1+r)^-n]/r

= 53000[1- (1+0.0725)^-30]/0.0725

= 641494.12

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Answer 2

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