a 10-year annuity is to make an annual payment of $2,500. Its price must be less...

a 10-year annuity is to make an annual payment of $2,500. Its price must be less than $25,000

True or False?

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Expert Solution

True. The price must be less than 25000.
The Price 25000 is only possible when interest rate is 0,but based on tine value of money the interest rate is always greater than 0. Higher the discount rate lower will be the PV of annuity as per the formula
PV =PMT*((1-(1+r)^-n)/r)

jeff jeffy answered 2 years ago

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