Question

In: Finance

An insurance company pays 5% per annum on money left with it. What would be the...

An insurance company pays 5% per annum on money left with it. What would be the cost of an annuity certain paying $250 at the end of each month for 10 years?

Solutions

Expert Solution

Cost of an annuity P×[1-(1÷(1+r)^n)]÷r
Here,
A Interest rate per annum 5.00%
B Number of years                                                                   10
C Number of compoundings per per annum                                                                   12
A÷C Interest rate per period ( r) 0.42%
B×C Number of periods (n) 120
Payment per period (P) $                                                             250
Cost of an annuity $                     23,570.34
250×(1-(1÷(1+0.42%)^120))÷0.42%

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