Kyler6161 Kyler6161

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You have a chance to buy an annuity that pays $2,500 at the end of each year for 3 years. You could earn 5.5% on your money in other investments with equal risk. What is the most you should pay for the annuity? $5,782.85 $6,087.21 $6,407.59 $6,744.83

Answer :

TomShelby TomShelby

Today at 2:44 PM

Answer:

$6,744.83

Explanation:

We calcualte the present value of a three years annuity discounted at 5.5% considering their cashflow are 2,500

[tex]C \times \frac{1-(1+r)^{-time} }{rate} = PV\\[/tex]

C 2,500.00

time 3

rate 0.055

[tex]2500 \times \frac{1-(1+0.055)^{-3} }{0.055} = PV\\[/tex]

PV $6,744.8334

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