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In: Finance

C. D. Rom has just given an insurance company $33,500. Inreturn, he will receive an...

C. D. Rom has just given an insurance company $33,500. In return, he will receive an annuity of $4,000 for 20 years.  

At what rate of return must the insurance company invest this $33,500 in order to make the annual payments? Use Appendix D for an approximate answer, but calculate your final answer using the financial calculator method. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
  

Rate of return _______%

Solutions

Expert Solution

Present Value (PV)= $33,500

Annuity= $4,000

Time period= 20 years

This is calculated by using a financial calculator by inputting the below:

PV= -$33,500; PMT=4,000; N=20

Press CPT and I/Y to compute the rate of return.

The rate of return is 10.24%.

jeff jeffy answered 2 years ago
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