Your friend offers to pay you an annuity of $8,500 at the end of each year...

Your friend offers to pay you an annuity of $8,500 at the end of each year for 3 years in return for cash today. You could earn 5.5% on your money in other investments with equal risk. What is the most you should pay for the annuity?

Expert Solution

Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=8500[1-(1.055)^-3]/0.055

=8500*2.69793338

which is equal to

=$22932.43(Approx)

jeff jeffy answered 2 years ago

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