Your father asked for your help. He has been offered an annuitythat will pay him...

Your father asked for your help. He has been offered an annuity that will pay him $1,933 per month for 23 years. He thinks that the fair return should be 4.4%. What is the most he should be willing to pay for it today?

Expert Solution

Formula: The present value of an ordinary annuity (PV)

PV = C× [1-(1+r)^-n]/r

PV = Present value (The cummulative amount available at Present)

C= Periodic cash flow.

r =effective interest rate for the period.

n = number of periods.

PV = 1933× [1-(1+0.3666%)^-276]/0.3666%

PV = $335,200.84

Answer: he should be willing to pay $335,200.84

jeff jeffy answered 2 years ago

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