A 5-year annuity making quarterly payments of 2250 will make its first payment 11 years and 3 months from today

A 5-year annuity making quarterly payments of 2250 will make its first payment 11 years and 3 months from today. You would like to purchase this annuity 2 years from today. If you want to earn an effective annual rate of 6.5% what should you be willing to pay 2 years from now? Your answer below to the nearest dollar.

Expert Solution

APR(quarterly) = 4[(1.065)¹/⁴ - 1] = 6.347%

Calculating value of Annuity at the end of year 11,

Using TVM Calculation,

PV = [FV = 0, PMT = 2,250, N = 20, I = 0.06347/4]

PV = $38,301.10

Value at the end of year 2 = 38,301.10/(1.065)⁹

Value = $21,730.25

jeff jeffy answered 2 years ago

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