Question

An insurance agent is trying to sell you an​ annuity, that will provide you with

​$6 comma 5006,500

at the end of each year for the next

1515

years. If you​ don't purchase this​ annuity, you can invest your money and earn a return of

77​%.

What is the most you would pay for this annuity right​ now?

Ignoring​ taxes, the most you would pay for this annuity is

​$nothing .

Answer 1

PVA = Annuity x [{1 - (1 + r)^-n} / r]

= $6,500 x [{1 - (1 + 0.07)^-15} / 0.07]

= $6,500 x [{1 - 0.3624} / 0.07]

= $6,500 x [0.6376 / 0.07]

= $6,500 x 9.1079 = $59,201.44

So, the most you would pay for this annuity is $59,201.44