You manage an investment fund that sells annuities. You sell a 8-year ordinary level annuity that...

You manage an investment fund that sells annuities. You sell a 8-year ordinary level annuity that makes monthly payments of $2,419 per month, starting next month. If interest rates are 3.79% APR (compounded monthly) what is the current price of this annuity?

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Expert Solution

Solution:-

Here given PMT = $2,419

Interest per year = 0.0379/12 = 0.003158

Time period N= 8 * 12 = 96

PV = PMT * [1-(1+i)^-n] / i

PV = $2,419 * [1 - (1+0.003158)^-96] / 0.003158

= $2,419 * [1 - 0.7388] / 0.003158

= $2,419 * 0.2612 / 0.003158

= $2,419 * 82.71

= $200,075.49

Therefore the current price of this annuity is $200,075.49

jeff jeffy answered 2 years ago

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