You are offered a 12-year annuity of $10,000 annual payments. However, the annuity begins in 8...

You are offered a 12-year annuity of $10,000 annual payments. However, the annuity begins in 8 years (you will not receive any payments for 8 years, but will then receive $10,000 at the end of each year for 12 years. If the discount rate is 5% per year (compounded annually), what is the current value of the annuity?

Expert Solution

Value of annuity at Year 7 =Annual Payments*((1-(1+r)^-n)/r) =10000*((1-(1+5%)^-12)/5%) =88632.5164
Current Value of annuity =Value of annuity at Year 7 /(1+r)^7 =88632.5164/(1+5%)^7 =62989.47

jeff jeffy answered 2 years ago

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